Correlation Between Dazhong Transportation and Jinlong Machinery

Can any of the company-specific risk be diversified away by investing in both Dazhong Transportation and Jinlong Machinery 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 Dazhong Transportation and Jinlong Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dazhong Transportation Group and Jinlong Machinery Electronic, you can compare the effects of market volatilities on Dazhong Transportation and Jinlong Machinery 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 Dazhong Transportation with a short position of Jinlong Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dazhong Transportation and Jinlong Machinery.

Diversification Opportunities for Dazhong Transportation and Jinlong Machinery

0.7

Correlation Coefficient

Dazhong Transportation  Jinlong Machinery

Poor diversification

The 3 months correlation between Dazhong and Jinlong is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Jinlong Machinery Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinlong Machinery and Dazhong Transportation 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 Dazhong Transportation Group are associated (or correlated) with Jinlong Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinlong Machinery has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Jinlong Machinery go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Jinlong Machinery

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to generate 0.57 times more return on investment than Jinlong Machinery. However, Dazhong Transportation Group is 1.76 times less risky than Jinlong Machinery. It trades about -0.35 of its potential returns per unit of risk. Jinlong Machinery Electronic is currently generating about -0.3 per unit of risk. If you would invest  26.00  in Dazhong Transportation Group on October 11, 2024 and sell it today you would lose (4.00) from holding Dazhong Transportation Group or give up 15.38% of portfolio value over 90 days.

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

Dazhong Transportation Group  vs.  Jinlong Machinery Electronic

Dazhong Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Jinlong Machinery

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jinlong Machinery Electronic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jinlong Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dazhong Transportation and Jinlong Machinery

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

The idea behind Dazhong Transportation Group and Jinlong Machinery Electronic 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.