Correlation Between Gansu Jiu and Linzhou Heavy

Can any of the company-specific risk be diversified away by investing in both Gansu Jiu and Linzhou Heavy 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 Linzhou Heavy 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 Linzhou Heavy Machinery, you can compare the effects of market volatilities on Gansu Jiu and Linzhou Heavy 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 Linzhou Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gansu Jiu and Linzhou Heavy.

Diversification Opportunities for Gansu Jiu and Linzhou Heavy

0.29

Correlation Coefficient

Gansu Jiu  Linzhou Heavy

Modest diversification

The 3 months correlation between Gansu and Linzhou is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Linzhou Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linzhou Heavy Machinery 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 Linzhou Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linzhou Heavy Machinery has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Linzhou Heavy go up and down completely randomly.

Pair Corralation between Gansu Jiu and Linzhou Heavy

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Linzhou Heavy. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 1.65 times less risky than Linzhou Heavy. The stock trades about -0.03 of its potential returns per unit of risk. The Linzhou Heavy Machinery is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  389.00  in Linzhou Heavy Machinery on December 25, 2024 and sell it today you would earn a total of  57.00  from holding Linzhou Heavy Machinery or generate 14.65% return on investment over 90 days.

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

Gansu Jiu Steel  vs.  Linzhou Heavy Machinery

Gansu Jiu Steel

Risk-Adjusted Performance

Very Weak

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

Linzhou Heavy Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Linzhou Heavy Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Linzhou Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gansu Jiu and Linzhou Heavy

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

The idea behind Gansu Jiu Steel and Linzhou Heavy Machinery 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.