Correlation Between Lingyuan Iron and Gansu Jiu

Can any of the company-specific risk be diversified away by investing in both Lingyuan Iron and Gansu Jiu 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 Lingyuan Iron and Gansu Jiu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lingyuan Iron Steel and Gansu Jiu Steel, you can compare the effects of market volatilities on Lingyuan Iron and Gansu Jiu 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 Lingyuan Iron with a short position of Gansu Jiu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lingyuan Iron and Gansu Jiu.

Diversification Opportunities for Lingyuan Iron and Gansu Jiu

0.94

Correlation Coefficient

Lingyuan Iron  Gansu Jiu

Almost no diversification

The 3 months correlation between Lingyuan and Gansu is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Lingyuan Iron Steel and Gansu Jiu Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Jiu Steel and Lingyuan Iron 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 Lingyuan Iron Steel are associated (or correlated) with Gansu Jiu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Jiu Steel has no effect on the direction of Lingyuan Iron i.e., Lingyuan Iron and Gansu Jiu go up and down completely randomly.

Pair Corralation between Lingyuan Iron and Gansu Jiu

Assuming the 90 days trading horizon Lingyuan Iron is expected to generate 1.14 times less return on investment than Gansu Jiu. But when comparing it to its historical volatility, Lingyuan Iron Steel is 1.12 times less risky than Gansu Jiu. It trades about 0.2 of its potential returns per unit of risk. Gansu Jiu Steel is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  121.00  in Gansu Jiu Steel on September 12, 2024 and sell it today you would earn a total of  64.00  from holding Gansu Jiu Steel or generate 52.89% return on investment over 90 days.

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

Lingyuan Iron Steel  vs.  Gansu Jiu Steel

Lingyuan Iron Steel

Risk-Adjusted Performance

15 of 100

Good

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

Gansu Jiu Steel

Risk-Adjusted Performance

15 of 100

Solid

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

Pair Trading with Lingyuan Iron and Gansu Jiu

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

The idea behind Lingyuan Iron Steel and Gansu Jiu 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.