Correlation Between Jiangsu GDK and Fujian Newland

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

By analyzing existing cross correlation between Jiangsu GDK Biotechnology and Fujian Newland Computer, you can compare the effects of market volatilities on Jiangsu GDK and Fujian Newland 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 Jiangsu GDK with a short position of Fujian Newland. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangsu GDK and Fujian Newland.

Diversification Opportunities for Jiangsu GDK and Fujian Newland

0.03

Correlation Coefficient

Jiangsu GDK  Fujian Newland

Significant diversification

The 3 months correlation between Jiangsu and Fujian is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu GDK Biotechnology and Fujian Newland Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Newland Computer and Jiangsu GDK 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 Jiangsu GDK Biotechnology are associated (or correlated) with Fujian Newland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Newland Computer has no effect on the direction of Jiangsu GDK i.e., Jiangsu GDK and Fujian Newland go up and down completely randomly.

Pair Corralation between Jiangsu GDK and Fujian Newland

Assuming the 90 days trading horizon Jiangsu GDK Biotechnology is expected to under-perform the Fujian Newland. But the stock apears to be less risky and, when comparing its historical volatility, Jiangsu GDK Biotechnology is 1.43 times less risky than Fujian Newland. The stock trades about -0.06 of its potential returns per unit of risk. The Fujian Newland Computer is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,032  in Fujian Newland Computer on December 26, 2024 and sell it today you would earn a total of  626.00  from holding Fujian Newland Computer or generate 30.81% return on investment over 90 days.

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

Jiangsu GDK Biotechnology  vs.  Fujian Newland Computer

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jiangsu GDK Biotechnology 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.

Fujian Newland Computer

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fujian Newland Computer are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fujian Newland sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiangsu GDK and Fujian Newland

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

The idea behind Jiangsu GDK Biotechnology and Fujian Newland Computer 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.