Correlation Between Jiangsu Financial and Huafa Industrial

Can any of the company-specific risk be diversified away by investing in both Jiangsu Financial and Huafa Industrial 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 Jiangsu Financial and Huafa Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jiangsu Financial Leasing and Huafa Industrial Co, you can compare the effects of market volatilities on Jiangsu Financial and Huafa Industrial 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 Jiangsu Financial with a short position of Huafa Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangsu Financial and Huafa Industrial.

Diversification Opportunities for Jiangsu Financial and Huafa Industrial

0.95

Correlation Coefficient

Jiangsu Financial  Huafa Industrial

Almost no diversification

The 3 months correlation between Jiangsu and Huafa is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu Financial Leasing and Huafa Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huafa Industrial and Jiangsu Financial 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 Jiangsu Financial Leasing are associated (or correlated) with Huafa Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huafa Industrial has no effect on the direction of Jiangsu Financial i.e., Jiangsu Financial and Huafa Industrial go up and down completely randomly.

Pair Corralation between Jiangsu Financial and Huafa Industrial

Assuming the 90 days trading horizon Jiangsu Financial is expected to generate 1.39 times less return on investment than Huafa Industrial. But when comparing it to its historical volatility, Jiangsu Financial Leasing is 1.21 times less risky than Huafa Industrial. It trades about 0.1 of its potential returns per unit of risk. Huafa Industrial Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  566.00  in Huafa Industrial Co on September 5, 2024 and sell it today you would earn a total of  112.00  from holding Huafa Industrial Co or generate 19.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.28%
Values	Daily Returns

Jiangsu Financial Leasing  vs.  Huafa Industrial Co

Jiangsu Financial Leasing

Risk-Adjusted Performance

8 of 100

OK

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

Huafa Industrial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Huafa Industrial Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huafa Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiangsu Financial and Huafa Industrial

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

The idea behind Jiangsu Financial Leasing and Huafa Industrial Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.