Correlation Between NBTM New and Jiangsu GDK

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

By analyzing existing cross correlation between NBTM New Materials and Jiangsu GDK Biotechnology, you can compare the effects of market volatilities on NBTM New and Jiangsu GDK 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 NBTM New with a short position of Jiangsu GDK. Check out your portfolio center. Please also check ongoing floating volatility patterns of NBTM New and Jiangsu GDK.

Diversification Opportunities for NBTM New and Jiangsu GDK

-0.05

Correlation Coefficient

NBTM New  Jiangsu GDK

Good diversification

The 3 months correlation between NBTM and Jiangsu is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding NBTM New Materials and Jiangsu GDK Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu GDK Biotechnology and NBTM New 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 NBTM New Materials are associated (or correlated) with Jiangsu GDK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu GDK Biotechnology has no effect on the direction of NBTM New i.e., NBTM New and Jiangsu GDK go up and down completely randomly.

Pair Corralation between NBTM New and Jiangsu GDK

Assuming the 90 days trading horizon NBTM New Materials is expected to generate 1.4 times more return on investment than Jiangsu GDK. However, NBTM New is 1.4 times more volatile than Jiangsu GDK Biotechnology. It trades about 0.14 of its potential returns per unit of risk. Jiangsu GDK Biotechnology is currently generating about -0.05 per unit of risk. If you would invest  1,613  in NBTM New Materials on December 25, 2024 and sell it today you would earn a total of  415.00  from holding NBTM New Materials or generate 25.73% return on investment over 90 days.

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

NBTM New Materials  vs.  Jiangsu GDK Biotechnology

NBTM New Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NBTM New Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NBTM New sustained solid returns over the last few months and may actually be approaching a breakup point.

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jiangsu GDK Biotechnology 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 NBTM New and Jiangsu GDK

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

The idea behind NBTM New Materials and Jiangsu GDK Biotechnology 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.