Correlation Between Gansu Jiu and Hwabao WP

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

Diversification Opportunities for Gansu Jiu and Hwabao WP

-0.08

Correlation Coefficient

Gansu Jiu  Hwabao WP

Good diversification

The 3 months correlation between Gansu and Hwabao is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Hwabao WP CSI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwabao WP CSI 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 Hwabao WP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwabao WP CSI has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Hwabao WP go up and down completely randomly.

Pair Corralation between Gansu Jiu and Hwabao WP

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Hwabao WP. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 1.12 times less risky than Hwabao WP. The stock trades about -0.03 of its potential returns per unit of risk. The Hwabao WP CSI is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  137.00  in Hwabao WP CSI on December 26, 2024 and sell it today you would lose (5.00) from holding Hwabao WP CSI or give up 3.65% of portfolio value over 90 days.

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

Gansu Jiu Steel  vs.  Hwabao WP CSI

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.

Hwabao WP CSI

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Gansu Jiu and Hwabao WP

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

The idea behind Gansu Jiu Steel and Hwabao WP CSI 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.