Correlation Between Jinsanjiang (Zhaoqing) and Chengdu Xuguang

Can any of the company-specific risk be diversified away by investing in both Jinsanjiang (Zhaoqing) and Chengdu Xuguang 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 Jinsanjiang (Zhaoqing) and Chengdu Xuguang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jinsanjiang Silicon Material and Chengdu Xuguang Electronics, you can compare the effects of market volatilities on Jinsanjiang (Zhaoqing) and Chengdu Xuguang 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 Jinsanjiang (Zhaoqing) with a short position of Chengdu Xuguang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jinsanjiang (Zhaoqing) and Chengdu Xuguang.

Diversification Opportunities for Jinsanjiang (Zhaoqing) and Chengdu Xuguang

0.16

Correlation Coefficient

Jinsanjiang (Zhaoqing)  Chengdu Xuguang

Average diversification

The 3 months correlation between Jinsanjiang and Chengdu is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Jinsanjiang Silicon Material and Chengdu Xuguang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xuguang Elec and Jinsanjiang (Zhaoqing) 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 Jinsanjiang Silicon Material are associated (or correlated) with Chengdu Xuguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xuguang Elec has no effect on the direction of Jinsanjiang (Zhaoqing) i.e., Jinsanjiang (Zhaoqing) and Chengdu Xuguang go up and down completely randomly.

Pair Corralation between Jinsanjiang (Zhaoqing) and Chengdu Xuguang

Assuming the 90 days trading horizon Jinsanjiang (Zhaoqing) is expected to generate 13.98 times less return on investment than Chengdu Xuguang. In addition to that, Jinsanjiang (Zhaoqing) is 1.11 times more volatile than Chengdu Xuguang Electronics. It trades about 0.01 of its total potential returns per unit of risk. Chengdu Xuguang Electronics is currently generating about 0.08 per unit of volatility. If you would invest  762.00  in Chengdu Xuguang Electronics on December 28, 2024 and sell it today you would earn a total of  91.00  from holding Chengdu Xuguang Electronics or generate 11.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Jinsanjiang Silicon Material  vs.  Chengdu Xuguang Electronics

Jinsanjiang (Zhaoqing)

Risk-Adjusted Performance

Very Weak

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

Chengdu Xuguang Elec

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xuguang Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xuguang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jinsanjiang (Zhaoqing) and Chengdu Xuguang

The main advantage of trading using opposite Jinsanjiang (Zhaoqing) and Chengdu Xuguang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jinsanjiang (Zhaoqing) position performs unexpectedly, Chengdu Xuguang 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 Chengdu Xuguang will offset losses from the drop in Chengdu Xuguang's long position.

The idea behind Jinsanjiang Silicon Material and Chengdu Xuguang Electronics 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.