Correlation Between Guangdong Jinma and Fujian Longzhou

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

By analyzing existing cross correlation between Guangdong Jinma Entertainment and Fujian Longzhou Transportation, you can compare the effects of market volatilities on Guangdong Jinma and Fujian Longzhou 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 Jinma with a short position of Fujian Longzhou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Jinma and Fujian Longzhou.

Diversification Opportunities for Guangdong Jinma and Fujian Longzhou

0.88

Correlation Coefficient

Guangdong Jinma  Fujian Longzhou

Very poor diversification

The 3 months correlation between Guangdong and Fujian is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jinma Entertainment and Fujian Longzhou Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Longzhou Tran and Guangdong Jinma 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 Jinma Entertainment are associated (or correlated) with Fujian Longzhou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Longzhou Tran has no effect on the direction of Guangdong Jinma i.e., Guangdong Jinma and Fujian Longzhou go up and down completely randomly.

Pair Corralation between Guangdong Jinma and Fujian Longzhou

Assuming the 90 days trading horizon Guangdong Jinma Entertainment is expected to generate 0.79 times more return on investment than Fujian Longzhou. However, Guangdong Jinma Entertainment is 1.27 times less risky than Fujian Longzhou. It trades about -0.35 of its potential returns per unit of risk. Fujian Longzhou Transportation is currently generating about -0.46 per unit of risk. If you would invest  1,649  in Guangdong Jinma Entertainment on October 8, 2024 and sell it today you would lose (288.00) from holding Guangdong Jinma Entertainment or give up 17.47% of portfolio value over 90 days.

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

Guangdong Jinma Entertainment  vs.  Fujian Longzhou Transportation

Guangdong Jinma Ente

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Jinma Entertainment 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.

Fujian Longzhou Tran

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangdong Jinma and Fujian Longzhou

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

The idea behind Guangdong Jinma Entertainment and Fujian Longzhou Transportation 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.