Correlation Between Gansu Jiu and HeBei Jinniu

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

Diversification Opportunities for Gansu Jiu and HeBei Jinniu

-0.13

Correlation Coefficient

Gansu Jiu  HeBei Jinniu

Good diversification

The 3 months correlation between Gansu and HeBei is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and HeBei Jinniu Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeBei Jinniu Chemical 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 HeBei Jinniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeBei Jinniu Chemical has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and HeBei Jinniu go up and down completely randomly.

Pair Corralation between Gansu Jiu and HeBei Jinniu

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the HeBei Jinniu. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 1.6 times less risky than HeBei Jinniu. The stock trades about -0.08 of its potential returns per unit of risk. The HeBei Jinniu Chemical is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  497.00  in HeBei Jinniu Chemical on December 24, 2024 and sell it today you would earn a total of  55.00  from holding HeBei Jinniu Chemical or generate 11.07% return on investment over 90 days.

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

Gansu Jiu Steel  vs.  HeBei Jinniu Chemical

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

HeBei Jinniu Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeBei Jinniu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gansu Jiu and HeBei Jinniu

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

The idea behind Gansu Jiu Steel and HeBei Jinniu Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.