Correlation Between Jiangsu Jinling and Huadong Medicine

Can any of the company-specific risk be diversified away by investing in both Jiangsu Jinling and Huadong Medicine 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 Jiangsu Jinling and Huadong Medicine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jiangsu Jinling Sports and Huadong Medicine Co, you can compare the effects of market volatilities on Jiangsu Jinling and Huadong Medicine 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 Jiangsu Jinling with a short position of Huadong Medicine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangsu Jinling and Huadong Medicine.

Diversification Opportunities for Jiangsu Jinling and Huadong Medicine

0.77

Correlation Coefficient

Jiangsu Jinling  Huadong Medicine

Poor diversification

The 3 months correlation between Jiangsu and Huadong is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu Jinling Sports and Huadong Medicine Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huadong Medicine and Jiangsu Jinling 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 Jiangsu Jinling Sports are associated (or correlated) with Huadong Medicine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huadong Medicine has no effect on the direction of Jiangsu Jinling i.e., Jiangsu Jinling and Huadong Medicine go up and down completely randomly.

Pair Corralation between Jiangsu Jinling and Huadong Medicine

Assuming the 90 days trading horizon Jiangsu Jinling Sports is expected to under-perform the Huadong Medicine. In addition to that, Jiangsu Jinling is 1.68 times more volatile than Huadong Medicine Co. It trades about -0.03 of its total potential returns per unit of risk. Huadong Medicine Co is currently generating about -0.02 per unit of volatility. If you would invest  4,068  in Huadong Medicine Co on October 5, 2024 and sell it today you would lose (775.00) from holding Huadong Medicine Co or give up 19.05% of portfolio value over 90 days.

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

Jiangsu Jinling Sports  vs.  Huadong Medicine Co

Jiangsu Jinling Sports

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jiangsu Jinling Sports has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Huadong Medicine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huadong Medicine Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Jiangsu Jinling and Huadong Medicine

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

The idea behind Jiangsu Jinling Sports and Huadong Medicine Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.