Correlation Between Jinhe Biotechnology and Tonghua Grape

Can any of the company-specific risk be diversified away by investing in both Jinhe Biotechnology and Tonghua Grape 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 Jinhe Biotechnology and Tonghua Grape into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jinhe Biotechnology Co and Tonghua Grape Wine, you can compare the effects of market volatilities on Jinhe Biotechnology and Tonghua Grape 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 Jinhe Biotechnology with a short position of Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jinhe Biotechnology and Tonghua Grape.

Diversification Opportunities for Jinhe Biotechnology and Tonghua Grape

0.86

Correlation Coefficient

Jinhe Biotechnology  Tonghua Grape

Very poor diversification

The 3 months correlation between Jinhe and Tonghua is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Jinhe Biotechnology Co and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine and Jinhe Biotechnology 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 Jinhe Biotechnology Co are associated (or correlated) with Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of Jinhe Biotechnology i.e., Jinhe Biotechnology and Tonghua Grape go up and down completely randomly.

Pair Corralation between Jinhe Biotechnology and Tonghua Grape

Assuming the 90 days trading horizon Jinhe Biotechnology is expected to generate 1.38 times less return on investment than Tonghua Grape. But when comparing it to its historical volatility, Jinhe Biotechnology Co is 1.09 times less risky than Tonghua Grape. It trades about 0.12 of its potential returns per unit of risk. Tonghua Grape Wine is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  293.00  in Tonghua Grape Wine on September 22, 2024 and sell it today you would earn a total of  21.00  from holding Tonghua Grape Wine or generate 7.17% return on investment over 90 days.

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

Jinhe Biotechnology Co  vs.  Tonghua Grape Wine

Jinhe Biotechnology

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jinhe Biotechnology Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jinhe Biotechnology sustained solid returns over the last few months and may actually be approaching a breakup point.

Tonghua Grape Wine

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tonghua Grape sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jinhe Biotechnology and Tonghua Grape

The main advantage of trading using opposite Jinhe Biotechnology and Tonghua Grape positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jinhe Biotechnology position performs unexpectedly, Tonghua Grape 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 Tonghua Grape will offset losses from the drop in Tonghua Grape's long position.

The idea behind Jinhe Biotechnology Co and Tonghua Grape Wine 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.