Correlation Between Anhui Jianghuai and ZJBC Information

Can any of the company-specific risk be diversified away by investing in both Anhui Jianghuai and ZJBC Information 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 Anhui Jianghuai and ZJBC Information into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Jianghuai Automobile and ZJBC Information Technology, you can compare the effects of market volatilities on Anhui Jianghuai and ZJBC Information 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 Anhui Jianghuai with a short position of ZJBC Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Jianghuai and ZJBC Information.

Diversification Opportunities for Anhui Jianghuai and ZJBC Information

-0.02

Correlation Coefficient

Anhui Jianghuai  ZJBC Information

Good diversification

The 3 months correlation between Anhui and ZJBC is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Jianghuai Automobile and ZJBC Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZJBC Information Tec and Anhui Jianghuai 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 Anhui Jianghuai Automobile are associated (or correlated) with ZJBC Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZJBC Information Tec has no effect on the direction of Anhui Jianghuai i.e., Anhui Jianghuai and ZJBC Information go up and down completely randomly.

Pair Corralation between Anhui Jianghuai and ZJBC Information

Assuming the 90 days trading horizon Anhui Jianghuai Automobile is expected to generate 1.0 times more return on investment than ZJBC Information. However, Anhui Jianghuai is 1.0 times more volatile than ZJBC Information Technology. It trades about 0.05 of its potential returns per unit of risk. ZJBC Information Technology is currently generating about -0.21 per unit of risk. If you would invest  3,758  in Anhui Jianghuai Automobile on October 22, 2024 and sell it today you would earn a total of  79.00  from holding Anhui Jianghuai Automobile or generate 2.1% return on investment over 90 days.

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

Anhui Jianghuai Automobile  vs.  ZJBC Information Technology

Anhui Jianghuai Auto

Risk-Adjusted Performance

3 of 100

Modest

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

ZJBC Information Tec

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZJBC Information Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ZJBC Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anhui Jianghuai and ZJBC Information

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

The idea behind Anhui Jianghuai Automobile and ZJBC Information Technology 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.