Correlation Between Wuhan Yangtze and Jinlong Machinery

Can any of the company-specific risk be diversified away by investing in both Wuhan Yangtze and Jinlong Machinery 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 Wuhan Yangtze and Jinlong Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wuhan Yangtze Communication and Jinlong Machinery Electronic, you can compare the effects of market volatilities on Wuhan Yangtze and Jinlong Machinery 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 Wuhan Yangtze with a short position of Jinlong Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuhan Yangtze and Jinlong Machinery.

Diversification Opportunities for Wuhan Yangtze and Jinlong Machinery

0.68

Correlation Coefficient

Wuhan Yangtze  Jinlong Machinery

Poor diversification

The 3 months correlation between Wuhan and Jinlong is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Yangtze Communication and Jinlong Machinery Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinlong Machinery and Wuhan Yangtze 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 Wuhan Yangtze Communication are associated (or correlated) with Jinlong Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinlong Machinery has no effect on the direction of Wuhan Yangtze i.e., Wuhan Yangtze and Jinlong Machinery go up and down completely randomly.

Pair Corralation between Wuhan Yangtze and Jinlong Machinery

Assuming the 90 days trading horizon Wuhan Yangtze Communication is expected to generate 1.1 times more return on investment than Jinlong Machinery. However, Wuhan Yangtze is 1.1 times more volatile than Jinlong Machinery Electronic. It trades about 0.07 of its potential returns per unit of risk. Jinlong Machinery Electronic is currently generating about -0.01 per unit of risk. If you would invest  2,413  in Wuhan Yangtze Communication on December 24, 2024 and sell it today you would earn a total of  247.00  from holding Wuhan Yangtze Communication or generate 10.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Wuhan Yangtze Communication  vs.  Jinlong Machinery Electronic

Wuhan Yangtze Commun

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Yangtze Communication are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Yangtze sustained solid returns over the last few months and may actually be approaching a breakup point.

Jinlong Machinery

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Wuhan Yangtze and Jinlong Machinery

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

The idea behind Wuhan Yangtze Communication and Jinlong Machinery Electronic 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.