Correlation Between HeBei Jinniu and Shenyang Blue

Can any of the company-specific risk be diversified away by investing in both HeBei Jinniu and Shenyang Blue 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 HeBei Jinniu and Shenyang Blue into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HeBei Jinniu Chemical and Shenyang Blue Silver, you can compare the effects of market volatilities on HeBei Jinniu and Shenyang Blue 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 HeBei Jinniu with a short position of Shenyang Blue. Check out your portfolio center. Please also check ongoing floating volatility patterns of HeBei Jinniu and Shenyang Blue.

Diversification Opportunities for HeBei Jinniu and Shenyang Blue

0.25

Correlation Coefficient

HeBei Jinniu  Shenyang Blue

Modest diversification

The 3 months correlation between HeBei and Shenyang is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding HeBei Jinniu Chemical and Shenyang Blue Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenyang Blue Silver and HeBei Jinniu 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 HeBei Jinniu Chemical are associated (or correlated) with Shenyang Blue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenyang Blue Silver has no effect on the direction of HeBei Jinniu i.e., HeBei Jinniu and Shenyang Blue go up and down completely randomly.

Pair Corralation between HeBei Jinniu and Shenyang Blue

Assuming the 90 days trading horizon HeBei Jinniu is expected to generate 2.5 times less return on investment than Shenyang Blue. But when comparing it to its historical volatility, HeBei Jinniu Chemical is 1.72 times less risky than Shenyang Blue. It trades about 0.08 of its potential returns per unit of risk. Shenyang Blue Silver is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,420  in Shenyang Blue Silver on September 30, 2024 and sell it today you would earn a total of  1,007  from holding Shenyang Blue Silver or generate 70.92% return on investment over 90 days.

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

HeBei Jinniu Chemical  vs.  Shenyang Blue Silver

HeBei Jinniu Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 4 (%) 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.

Shenyang Blue Silver

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Blue Silver are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Blue sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HeBei Jinniu and Shenyang Blue

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

The idea behind HeBei Jinniu Chemical and Shenyang Blue Silver 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.