Correlation Between Jinhui Liquor and New Hope

Can any of the company-specific risk be diversified away by investing in both Jinhui Liquor and New Hope 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 Jinhui Liquor and New Hope into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jinhui Liquor Co and New Hope Dairy, you can compare the effects of market volatilities on Jinhui Liquor and New Hope 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 Jinhui Liquor with a short position of New Hope. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jinhui Liquor and New Hope.

Diversification Opportunities for Jinhui Liquor and New Hope

0.02

Correlation Coefficient

Jinhui Liquor  New Hope

Significant diversification

The 3 months correlation between Jinhui and New is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Jinhui Liquor Co and New Hope Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Hope Dairy and Jinhui Liquor 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 Jinhui Liquor Co are associated (or correlated) with New Hope. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Hope Dairy has no effect on the direction of Jinhui Liquor i.e., Jinhui Liquor and New Hope go up and down completely randomly.

Pair Corralation between Jinhui Liquor and New Hope

Assuming the 90 days trading horizon Jinhui Liquor Co is expected to under-perform the New Hope. But the stock apears to be less risky and, when comparing its historical volatility, Jinhui Liquor Co is 2.2 times less risky than New Hope. The stock trades about -0.04 of its potential returns per unit of risk. The New Hope Dairy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,421  in New Hope Dairy on December 25, 2024 and sell it today you would earn a total of  25.00  from holding New Hope Dairy or generate 1.76% return on investment over 90 days.

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

Jinhui Liquor Co  vs.  New Hope Dairy

Jinhui Liquor

Risk-Adjusted Performance

Very Weak

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

New Hope Dairy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Hope Dairy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, New Hope is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Jinhui Liquor and New Hope

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

The idea behind Jinhui Liquor Co and New Hope Dairy 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.