Correlation Between China Life and Jinlong Machinery

Can any of the company-specific risk be diversified away by investing in both China Life and Jinlong Machinery 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 China Life and Jinlong Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Life Insurance and Jinlong Machinery Electronic, you can compare the effects of market volatilities on China Life and Jinlong Machinery 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 China Life with a short position of Jinlong Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Life and Jinlong Machinery.

Diversification Opportunities for China Life and Jinlong Machinery

0.23

Correlation Coefficient

China Life  Jinlong Machinery

Modest diversification

The 3 months correlation between China and Jinlong is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Jinlong Machinery Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinlong Machinery and China Life 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 China Life Insurance are associated (or correlated) with Jinlong Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinlong Machinery has no effect on the direction of China Life i.e., China Life and Jinlong Machinery go up and down completely randomly.

Pair Corralation between China Life and Jinlong Machinery

Assuming the 90 days trading horizon China Life Insurance is expected to under-perform the Jinlong Machinery. But the stock apears to be less risky and, when comparing its historical volatility, China Life Insurance is 2.03 times less risky than Jinlong Machinery. The stock trades about -0.05 of its potential returns per unit of risk. The Jinlong Machinery Electronic is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  401.00  in Jinlong Machinery Electronic on October 11, 2024 and sell it today you would earn a total of  30.00  from holding Jinlong Machinery Electronic or generate 7.48% return on investment over 90 days.

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

China Life Insurance  vs.  Jinlong Machinery Electronic

China Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Jinlong Machinery

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jinlong Machinery Electronic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jinlong Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Life and Jinlong Machinery

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

The idea behind China Life Insurance and Jinlong Machinery Electronic 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.