Correlation Between Jiangsu Jiangnan and HeBei Jinniu

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

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

Diversification Opportunities for Jiangsu Jiangnan and HeBei Jinniu

0.47

Correlation Coefficient

Jiangsu Jiangnan  HeBei Jinniu

Very weak diversification

The 3 months correlation between Jiangsu and HeBei is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu Jiangnan Water and HeBei Jinniu Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeBei Jinniu Chemical and Jiangsu Jiangnan 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 Jiangnan Water are associated (or correlated) with HeBei Jinniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeBei Jinniu Chemical has no effect on the direction of Jiangsu Jiangnan i.e., Jiangsu Jiangnan and HeBei Jinniu go up and down completely randomly.

Pair Corralation between Jiangsu Jiangnan and HeBei Jinniu

Assuming the 90 days trading horizon Jiangsu Jiangnan Water is expected to under-perform the HeBei Jinniu. But the stock apears to be less risky and, when comparing its historical volatility, Jiangsu Jiangnan Water is 2.71 times less risky than HeBei Jinniu. The stock trades about -0.38 of its potential returns per unit of risk. The HeBei Jinniu Chemical is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  568.00  in HeBei Jinniu Chemical on October 9, 2024 and sell it today you would lose (18.00) from holding HeBei Jinniu Chemical or give up 3.17% of portfolio value over 90 days.

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

Jiangsu Jiangnan Water  vs.  HeBei Jinniu Chemical

Jiangsu Jiangnan Water

Risk-Adjusted Performance

0 of 100

Very Weak

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

HeBei Jinniu Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 10 (%) 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.

Pair Trading with Jiangsu Jiangnan and HeBei Jinniu

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

The idea behind Jiangsu Jiangnan Water and HeBei Jinniu Chemical 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.