Correlation Between Shantou Wanshun and Jilin Chemical

Can any of the company-specific risk be diversified away by investing in both Shantou Wanshun and Jilin Chemical 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 Shantou Wanshun and Jilin Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shantou Wanshun Package and Jilin Chemical Fibre, you can compare the effects of market volatilities on Shantou Wanshun and Jilin Chemical 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 Shantou Wanshun with a short position of Jilin Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shantou Wanshun and Jilin Chemical.

Diversification Opportunities for Shantou Wanshun and Jilin Chemical

0.87

Correlation Coefficient

Shantou Wanshun  Jilin Chemical

Very poor diversification

The 3 months correlation between Shantou and Jilin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shantou Wanshun Package and Jilin Chemical Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Chemical Fibre and Shantou Wanshun 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 Shantou Wanshun Package are associated (or correlated) with Jilin Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Chemical Fibre has no effect on the direction of Shantou Wanshun i.e., Shantou Wanshun and Jilin Chemical go up and down completely randomly.

Pair Corralation between Shantou Wanshun and Jilin Chemical

Assuming the 90 days trading horizon Shantou Wanshun is expected to generate 1.26 times less return on investment than Jilin Chemical. In addition to that, Shantou Wanshun is 1.26 times more volatile than Jilin Chemical Fibre. It trades about 0.14 of its total potential returns per unit of risk. Jilin Chemical Fibre is currently generating about 0.23 per unit of volatility. If you would invest  278.00  in Jilin Chemical Fibre on September 12, 2024 and sell it today you would earn a total of  152.00  from holding Jilin Chemical Fibre or generate 54.68% return on investment over 90 days.

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

Shantou Wanshun Package  vs.  Jilin Chemical Fibre

Shantou Wanshun Package

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shantou Wanshun Package are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantou Wanshun sustained solid returns over the last few months and may actually be approaching a breakup point.

Jilin Chemical Fibre

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with Shantou Wanshun and Jilin Chemical

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

The idea behind Shantou Wanshun Package and Jilin Chemical Fibre 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.