Correlation Between Jinhui Liquor and China Pacific

Can any of the company-specific risk be diversified away by investing in both Jinhui Liquor and China Pacific 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 China Pacific 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 China Pacific Insurance, you can compare the effects of market volatilities on Jinhui Liquor and China Pacific 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 China Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jinhui Liquor and China Pacific.

Diversification Opportunities for Jinhui Liquor and China Pacific

0.78

Correlation Coefficient

Jinhui Liquor  China Pacific

Poor diversification

The 3 months correlation between Jinhui and China is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Jinhui Liquor Co and China Pacific Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pacific Insurance 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 China Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pacific Insurance has no effect on the direction of Jinhui Liquor i.e., Jinhui Liquor and China Pacific go up and down completely randomly.

Pair Corralation between Jinhui Liquor and China Pacific

Assuming the 90 days trading horizon Jinhui Liquor Co is expected to generate 0.72 times more return on investment than China Pacific. However, Jinhui Liquor Co is 1.38 times less risky than China Pacific. It trades about -0.05 of its potential returns per unit of risk. China Pacific Insurance is currently generating about -0.05 per unit of risk. If you would invest  1,984  in Jinhui Liquor Co on December 24, 2024 and sell it today you would lose (82.00) from holding Jinhui Liquor Co or give up 4.13% of portfolio value over 90 days.

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

Jinhui Liquor Co  vs.  China Pacific Insurance

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.

China Pacific Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Pacific Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Pacific 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 China Pacific

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

The idea behind Jinhui Liquor Co and China Pacific Insurance 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.