Correlation Between Guangdong Liantai and Jiangsu Yike

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

By analyzing existing cross correlation between Guangdong Liantai Environmental and Jiangsu Yike Food, you can compare the effects of market volatilities on Guangdong Liantai and Jiangsu Yike 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 Guangdong Liantai with a short position of Jiangsu Yike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Liantai and Jiangsu Yike.

Diversification Opportunities for Guangdong Liantai and Jiangsu Yike

0.75

Correlation Coefficient

Guangdong Liantai  Jiangsu Yike

Poor diversification

The 3 months correlation between Guangdong and Jiangsu is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Jiangsu Yike Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Yike Food and Guangdong Liantai 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 Guangdong Liantai Environmental are associated (or correlated) with Jiangsu Yike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Yike Food has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Jiangsu Yike go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Jiangsu Yike

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to generate 0.58 times more return on investment than Jiangsu Yike. However, Guangdong Liantai Environmental is 1.73 times less risky than Jiangsu Yike. It trades about 0.04 of its potential returns per unit of risk. Jiangsu Yike Food is currently generating about -0.06 per unit of risk. If you would invest  405.00  in Guangdong Liantai Environmental on December 26, 2024 and sell it today you would earn a total of  9.00  from holding Guangdong Liantai Environmental or generate 2.22% return on investment over 90 days.

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

Guangdong Liantai Environmenta  vs.  Jiangsu Yike Food

Guangdong Liantai

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Liantai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jiangsu Yike Food

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jiangsu Yike Food 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.

Pair Trading with Guangdong Liantai and Jiangsu Yike

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

The idea behind Guangdong Liantai Environmental and Jiangsu Yike Food 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.