Correlation Between Zhejiang Juhua and Fushun Special

Can any of the company-specific risk be diversified away by investing in both Zhejiang Juhua and Fushun Special 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 Zhejiang Juhua and Fushun Special into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Juhua Co and Fushun Special Steel, you can compare the effects of market volatilities on Zhejiang Juhua and Fushun Special 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 Zhejiang Juhua with a short position of Fushun Special. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Juhua and Fushun Special.

Diversification Opportunities for Zhejiang Juhua and Fushun Special

0.83

Correlation Coefficient

Zhejiang Juhua  Fushun Special

Very poor diversification

The 3 months correlation between Zhejiang and Fushun is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Juhua Co and Fushun Special Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fushun Special Steel and Zhejiang Juhua 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 Zhejiang Juhua Co are associated (or correlated) with Fushun Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fushun Special Steel has no effect on the direction of Zhejiang Juhua i.e., Zhejiang Juhua and Fushun Special go up and down completely randomly.

Pair Corralation between Zhejiang Juhua and Fushun Special

Assuming the 90 days trading horizon Zhejiang Juhua Co is expected to generate 0.79 times more return on investment than Fushun Special. However, Zhejiang Juhua Co is 1.27 times less risky than Fushun Special. It trades about 0.19 of its potential returns per unit of risk. Fushun Special Steel is currently generating about 0.15 per unit of risk. If you would invest  1,669  in Zhejiang Juhua Co on September 14, 2024 and sell it today you would earn a total of  592.00  from holding Zhejiang Juhua Co or generate 35.47% return on investment over 90 days.

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

Zhejiang Juhua Co  vs.  Fushun Special Steel

Zhejiang Juhua

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Juhua Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Juhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Fushun Special Steel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fushun Special Steel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fushun Special sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Juhua and Fushun Special

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

The idea behind Zhejiang Juhua Co and Fushun Special Steel 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.