Correlation Between Dawning Information and Jilin Chemical

Can any of the company-specific risk be diversified away by investing in both Dawning Information and Jilin Chemical 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 Dawning Information and Jilin Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dawning Information Industry and Jilin Chemical Fibre, you can compare the effects of market volatilities on Dawning Information and Jilin Chemical 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 Dawning Information with a short position of Jilin Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dawning Information and Jilin Chemical.

Diversification Opportunities for Dawning Information and Jilin Chemical

0.85

Correlation Coefficient

Dawning Information  Jilin Chemical

Very poor diversification

The 3 months correlation between Dawning and Jilin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dawning Information Industry and Jilin Chemical Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Chemical Fibre and Dawning Information 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 Dawning Information Industry are associated (or correlated) with Jilin Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Chemical Fibre has no effect on the direction of Dawning Information i.e., Dawning Information and Jilin Chemical go up and down completely randomly.

Pair Corralation between Dawning Information and Jilin Chemical

Assuming the 90 days trading horizon Dawning Information Industry is expected to under-perform the Jilin Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Dawning Information Industry is 1.21 times less risky than Jilin Chemical. The stock trades about -0.03 of its potential returns per unit of risk. The Jilin Chemical Fibre is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  381.00  in Jilin Chemical Fibre on September 26, 2024 and sell it today you would lose (1.00) from holding Jilin Chemical Fibre or give up 0.26% of portfolio value over 90 days.

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

Dawning Information Industry  vs.  Jilin Chemical Fibre

Dawning Information

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dawning Information Industry are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dawning Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Jilin Chemical Fibre

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Dawning Information and Jilin Chemical

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

The idea behind Dawning Information Industry and Jilin Chemical Fibre 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.