Correlation Between Gansu Jiu and Sinomach General

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

Diversification Opportunities for Gansu Jiu and Sinomach General

0.58

Correlation Coefficient

Gansu Jiu  Sinomach General

Very weak diversification

The 3 months correlation between Gansu and Sinomach is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Sinomach General Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinomach General Mac 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 Sinomach General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinomach General Mac has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Sinomach General go up and down completely randomly.

Pair Corralation between Gansu Jiu and Sinomach General

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Sinomach General. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 1.05 times less risky than Sinomach General. The stock trades about -0.03 of its potential returns per unit of risk. The Sinomach General Machinery is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,501  in Sinomach General Machinery on December 26, 2024 and sell it today you would earn a total of  173.00  from holding Sinomach General Machinery or generate 11.53% return on investment over 90 days.

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

Gansu Jiu Steel  vs.  Sinomach General 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.

Sinomach General Mac

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sinomach General Machinery are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinomach General sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gansu Jiu and Sinomach General

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

The idea behind Gansu Jiu Steel and Sinomach General 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.