Correlation Between Guangdong Jinma and Shanghai Jinfeng

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

Diversification Opportunities for Guangdong Jinma and Shanghai Jinfeng

-0.2

Correlation Coefficient

Guangdong Jinma  Shanghai Jinfeng

Good diversification

The 3 months correlation between Guangdong and Shanghai is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jinma Entertainment and Shanghai Jinfeng Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Jinfeng Wine 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 Shanghai Jinfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Jinfeng Wine has no effect on the direction of Guangdong Jinma i.e., Guangdong Jinma and Shanghai Jinfeng go up and down completely randomly.

Pair Corralation between Guangdong Jinma and Shanghai Jinfeng

Assuming the 90 days trading horizon Guangdong Jinma Entertainment is expected to generate 1.09 times more return on investment than Shanghai Jinfeng. However, Guangdong Jinma is 1.09 times more volatile than Shanghai Jinfeng Wine. It trades about 0.1 of its potential returns per unit of risk. Shanghai Jinfeng Wine is currently generating about -0.03 per unit of risk. If you would invest  1,550  in Guangdong Jinma Entertainment on December 26, 2024 and sell it today you would earn a total of  183.00  from holding Guangdong Jinma Entertainment or generate 11.81% return on investment over 90 days.

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

Guangdong Jinma Entertainment  vs.  Shanghai Jinfeng Wine

Guangdong Jinma Ente

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Jinma Entertainment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Jinma sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Jinfeng Wine

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Jinfeng Wine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Jinfeng 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 Shanghai Jinfeng

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

The idea behind Guangdong Jinma Entertainment and Shanghai Jinfeng Wine 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.