Correlation Between Guangdong Jinming and Long Yuan

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Can any of the company-specific risk be diversified away by investing in both Guangdong Jinming and Long Yuan 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 Long Yuan 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 Long Yuan Construction, you can compare the effects of market volatilities on Guangdong Jinming and Long Yuan 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 Long Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Jinming and Long Yuan.

Diversification Opportunities for Guangdong Jinming and Long Yuan

GuangdongLongDiversified AwayGuangdongLongDiversified Away100%
0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Guangdong and Long is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jinming Machinery and Long Yuan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Yuan Construction 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 Long Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Yuan Construction has no effect on the direction of Guangdong Jinming i.e., Guangdong Jinming and Long Yuan go up and down completely randomly.

Pair Corralation between Guangdong Jinming and Long Yuan

Assuming the 90 days trading horizon Guangdong Jinming Machinery is expected to under-perform the Long Yuan. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Jinming Machinery is 1.13 times less risky than Long Yuan. The stock trades about -0.03 of its potential returns per unit of risk. The Long Yuan Construction is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  307.00  in Long Yuan Construction on October 9, 2024 and sell it today you would earn a total of  38.00  from holding Long Yuan Construction or generate 12.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Guangdong Jinming Machinery  vs.  Long Yuan Construction

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 01020304050
JavaScript chart by amCharts 3.21.15300281 600491
       Timeline  
Guangdong Jinming 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Guangdong Jinming Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Jinming is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan55.566.57
Long Yuan Construction 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Long Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan3.23.43.63.844.24.44.6

Guangdong Jinming and Long Yuan Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-14.34-10.74-7.14-3.540.03.497.110.714.3117.92 0.0150.0200.025
JavaScript chart by amCharts 3.21.15300281 600491
       Returns  

Pair Trading with Guangdong Jinming and Long Yuan

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

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