Correlation Between Guangdong Wens and Sichuan Jinshi

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

By analyzing existing cross correlation between Guangdong Wens Foodstuff and Sichuan Jinshi Technology, you can compare the effects of market volatilities on Guangdong Wens and Sichuan Jinshi 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 Wens with a short position of Sichuan Jinshi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Wens and Sichuan Jinshi.

Diversification Opportunities for Guangdong Wens and Sichuan Jinshi

0.18

Correlation Coefficient

Guangdong Wens  Sichuan Jinshi

Average diversification

The 3 months correlation between Guangdong and Sichuan is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Wens Foodstuff and Sichuan Jinshi Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Jinshi Technology and Guangdong Wens 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 Wens Foodstuff are associated (or correlated) with Sichuan Jinshi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Jinshi Technology has no effect on the direction of Guangdong Wens i.e., Guangdong Wens and Sichuan Jinshi go up and down completely randomly.

Pair Corralation between Guangdong Wens and Sichuan Jinshi

Assuming the 90 days trading horizon Guangdong Wens Foodstuff is expected to generate 0.73 times more return on investment than Sichuan Jinshi. However, Guangdong Wens Foodstuff is 1.37 times less risky than Sichuan Jinshi. It trades about 0.0 of its potential returns per unit of risk. Sichuan Jinshi Technology is currently generating about -0.01 per unit of risk. If you would invest  1,833  in Guangdong Wens Foodstuff on September 26, 2024 and sell it today you would lose (143.00) from holding Guangdong Wens Foodstuff or give up 7.8% of portfolio value over 90 days.

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

Guangdong Wens Foodstuff  vs.  Sichuan Jinshi Technology

Guangdong Wens Foodstuff

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sichuan Jinshi Technology

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Jinshi Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Jinshi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Wens and Sichuan Jinshi

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

The idea behind Guangdong Wens Foodstuff and Sichuan Jinshi Technology 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.