Correlation Between Gansu Jiu and Chengdu Xinzhu

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

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

Diversification Opportunities for Gansu Jiu and Chengdu Xinzhu

0.62

Correlation Coefficient

Gansu Jiu  Chengdu Xinzhu

Poor diversification

The 3 months correlation between Gansu and Chengdu is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Chengdu Xinzhu RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xinzhu RoadBridge and Gansu Jiu 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 Gansu Jiu Steel are associated (or correlated) with Chengdu Xinzhu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xinzhu RoadBridge has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Chengdu Xinzhu go up and down completely randomly.

Pair Corralation between Gansu Jiu and Chengdu Xinzhu

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Chengdu Xinzhu. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 1.9 times less risky than Chengdu Xinzhu. The stock trades about -0.49 of its potential returns per unit of risk. The Chengdu Xinzhu RoadBridge is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  582.00  in Chengdu Xinzhu RoadBridge on October 9, 2024 and sell it today you would lose (70.00) from holding Chengdu Xinzhu RoadBridge or give up 12.03% of portfolio value over 90 days.

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

Gansu Jiu Steel  vs.  Chengdu Xinzhu RoadBridge

Gansu Jiu Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Jiu may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Chengdu Xinzhu RoadBridge

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xinzhu RoadBridge are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xinzhu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gansu Jiu and Chengdu Xinzhu

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

The idea behind Gansu Jiu Steel and Chengdu Xinzhu RoadBridge 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.