Correlation Between Dongfeng Automobile and Jilin Chemical

Can any of the company-specific risk be diversified away by investing in both Dongfeng Automobile and Jilin Chemical 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 Dongfeng Automobile and Jilin Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongfeng Automobile Co and Jilin Chemical Fibre, you can compare the effects of market volatilities on Dongfeng Automobile and Jilin Chemical 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 Dongfeng Automobile with a short position of Jilin Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongfeng Automobile and Jilin Chemical.

Diversification Opportunities for Dongfeng Automobile and Jilin Chemical

0.67

Correlation Coefficient

Dongfeng Automobile  Jilin Chemical

Poor diversification

The 3 months correlation between Dongfeng and Jilin is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Jilin Chemical Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Chemical Fibre and Dongfeng Automobile 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 Dongfeng Automobile Co are associated (or correlated) with Jilin Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Chemical Fibre has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Jilin Chemical go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Jilin Chemical

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Jilin Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 1.38 times less risky than Jilin Chemical. The stock trades about -0.24 of its potential returns per unit of risk. The Jilin Chemical Fibre is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  359.00  in Jilin Chemical Fibre on December 10, 2024 and sell it today you would earn a total of  28.00  from holding Jilin Chemical Fibre or generate 7.8% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Jilin Chemical Fibre

Dongfeng Automobile

Risk-Adjusted Performance

Very Weak

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

Jilin Chemical Fibre

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jilin Chemical Fibre 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 Dongfeng Automobile and Jilin Chemical

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

The idea behind Dongfeng Automobile Co and Jilin Chemical Fibre 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.