Correlation Between Gansu Jiu and Shanghai Yanpu

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

Diversification Opportunities for Gansu Jiu and Shanghai Yanpu

-0.11

Correlation Coefficient

Gansu Jiu  Shanghai Yanpu

Good diversification

The 3 months correlation between Gansu and Shanghai is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Shanghai Yanpu Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yanpu Metal 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 Shanghai Yanpu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yanpu Metal has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Shanghai Yanpu go up and down completely randomly.

Pair Corralation between Gansu Jiu and Shanghai Yanpu

Assuming the 90 days trading horizon Gansu Jiu Steel is expected to under-perform the Shanghai Yanpu. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Jiu Steel is 1.21 times less risky than Shanghai Yanpu. The stock trades about -0.11 of its potential returns per unit of risk. The Shanghai Yanpu Metal is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,936  in Shanghai Yanpu Metal on December 2, 2024 and sell it today you would earn a total of  226.00  from holding Shanghai Yanpu Metal or generate 5.74% 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.  Shanghai Yanpu Metal

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shanghai Yanpu Metal

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Gansu Jiu and Shanghai Yanpu

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

The idea behind Gansu Jiu Steel and Shanghai Yanpu Metal 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.