Correlation Between Gansu Jiu and Tonghua Grape

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

Diversification Opportunities for Gansu Jiu and Tonghua Grape

0.71

Correlation Coefficient

Gansu Jiu  Tonghua Grape

Poor diversification

The 3 months correlation between Gansu and Tonghua is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine 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 Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Tonghua Grape go up and down completely randomly.

Pair Corralation between Gansu Jiu and Tonghua Grape

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Tonghua Grape. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 1.0 times less risky than Tonghua Grape. The stock trades about -0.2 of its potential returns per unit of risk. The Tonghua Grape Wine is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  288.00  in Tonghua Grape Wine on October 7, 2024 and sell it today you would lose (12.00) from holding Tonghua Grape Wine or give up 4.17% 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.  Tonghua Grape Wine

Gansu Jiu Steel

Risk-Adjusted Performance

0 of 100

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.

Tonghua Grape Wine

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Tonghua Grape 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 Tonghua Grape

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

The idea behind Gansu Jiu Steel and Tonghua Grape Wine 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.