Correlation Between Guangdong Jinming and China Securities

Can any of the company-specific risk be diversified away by investing in both Guangdong Jinming and China Securities 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 Guangdong Jinming and China Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Jinming Machinery and China Securities 800, you can compare the effects of market volatilities on Guangdong Jinming and China Securities 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 Guangdong Jinming with a short position of China Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Jinming and China Securities.

Diversification Opportunities for Guangdong Jinming and China Securities

0.6

Correlation Coefficient

Guangdong Jinming  China Securities

Poor diversification

The 3 months correlation between Guangdong and China is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jinming Machinery and China Securities 800 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Securities 800 and Guangdong Jinming 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 Guangdong Jinming Machinery are associated (or correlated) with China Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Securities 800 has no effect on the direction of Guangdong Jinming i.e., Guangdong Jinming and China Securities go up and down completely randomly.

Pair Corralation between Guangdong Jinming and China Securities

Assuming the 90 days trading horizon Guangdong Jinming Machinery is expected to generate 2.42 times more return on investment than China Securities. However, Guangdong Jinming is 2.42 times more volatile than China Securities 800. It trades about -0.03 of its potential returns per unit of risk. China Securities 800 is currently generating about -0.06 per unit of risk. If you would invest  557.00  in Guangdong Jinming Machinery on October 12, 2024 and sell it today you would lose (43.00) from holding Guangdong Jinming Machinery or give up 7.72% of portfolio value over 90 days.

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

Guangdong Jinming Machinery  vs.  China Securities 800

Pair Trading with Guangdong Jinming and China Securities

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

The idea behind Guangdong Jinming Machinery and China Securities 800 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..