Correlation Between HeBei Jinniu and Chengdu Xuguang

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

Diversification Opportunities for HeBei Jinniu and Chengdu Xuguang

0.36

Correlation Coefficient

HeBei Jinniu  Chengdu Xuguang

Weak diversification

The 3 months correlation between HeBei and Chengdu is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding HeBei Jinniu Chemical and Chengdu Xuguang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xuguang Elec 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 Chengdu Xuguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xuguang Elec has no effect on the direction of HeBei Jinniu i.e., HeBei Jinniu and Chengdu Xuguang go up and down completely randomly.

Pair Corralation between HeBei Jinniu and Chengdu Xuguang

Assuming the 90 days trading horizon HeBei Jinniu Chemical is expected to generate 0.98 times more return on investment than Chengdu Xuguang. However, HeBei Jinniu Chemical is 1.02 times less risky than Chengdu Xuguang. It trades about 0.15 of its potential returns per unit of risk. Chengdu Xuguang Electronics is currently generating about 0.07 per unit of risk. If you would invest  476.00  in HeBei Jinniu Chemical on December 26, 2024 and sell it today you would earn a total of  108.00  from holding HeBei Jinniu Chemical or generate 22.69% 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.  Chengdu Xuguang Electronics

HeBei Jinniu Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 11 (%) 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.

Chengdu Xuguang Elec

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xuguang Electronics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xuguang may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with HeBei Jinniu and Chengdu Xuguang

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

The idea behind HeBei Jinniu Chemical and Chengdu Xuguang Electronics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.