Correlation Between Guosheng Financial and Jizhong Energy

Can any of the company-specific risk be diversified away by investing in both Guosheng Financial and Jizhong Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Guosheng Financial and Jizhong Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guosheng Financial Holding and Jizhong Energy Resources, you can compare the effects of market volatilities on Guosheng Financial and Jizhong Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Guosheng Financial with a short position of Jizhong Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guosheng Financial and Jizhong Energy.

Diversification Opportunities for Guosheng Financial and Jizhong Energy

0.07

Correlation Coefficient

Guosheng Financial  Jizhong Energy

Significant diversification

The 3 months correlation between Guosheng and Jizhong is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Guosheng Financial Holding and Jizhong Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jizhong Energy Resources and Guosheng Financial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Guosheng Financial Holding are associated (or correlated) with Jizhong Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jizhong Energy Resources has no effect on the direction of Guosheng Financial i.e., Guosheng Financial and Jizhong Energy go up and down completely randomly.

Pair Corralation between Guosheng Financial and Jizhong Energy

Assuming the 90 days trading horizon Guosheng Financial Holding is expected to generate 3.01 times more return on investment than Jizhong Energy. However, Guosheng Financial is 3.01 times more volatile than Jizhong Energy Resources. It trades about -0.01 of its potential returns per unit of risk. Jizhong Energy Resources is currently generating about -0.07 per unit of risk. If you would invest  1,382  in Guosheng Financial Holding on December 27, 2024 and sell it today you would lose (56.00) from holding Guosheng Financial Holding or give up 4.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Guosheng Financial Holding  vs.  Jizhong Energy Resources

Guosheng Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guosheng Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guosheng Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jizhong Energy Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jizhong Energy Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jizhong Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guosheng Financial and Jizhong Energy

The main advantage of trading using opposite Guosheng Financial and Jizhong Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guosheng Financial position performs unexpectedly, Jizhong Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Jizhong Energy will offset losses from the drop in Jizhong Energy's long position.

The idea behind Guosheng Financial Holding and Jizhong Energy Resources pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the FinTech Suite module to use AI to screen and filter profitable investment opportunities.