Correlation Between HeNan Splendor and Gansu Jiu

Can any of the company-specific risk be diversified away by investing in both HeNan Splendor and Gansu Jiu 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 HeNan Splendor and Gansu Jiu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HeNan Splendor Science and Gansu Jiu Steel, you can compare the effects of market volatilities on HeNan Splendor and Gansu Jiu 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 HeNan Splendor with a short position of Gansu Jiu. Check out your portfolio center. Please also check ongoing floating volatility patterns of HeNan Splendor and Gansu Jiu.

Diversification Opportunities for HeNan Splendor and Gansu Jiu

0.71

Correlation Coefficient

HeNan Splendor  Gansu Jiu

Poor diversification

The 3 months correlation between HeNan and Gansu is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and Gansu Jiu Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Jiu Steel and HeNan Splendor 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 HeNan Splendor Science are associated (or correlated) with Gansu Jiu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Jiu Steel has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and Gansu Jiu go up and down completely randomly.

Pair Corralation between HeNan Splendor and Gansu Jiu

Assuming the 90 days trading horizon HeNan Splendor Science is expected to generate 1.97 times more return on investment than Gansu Jiu. However, HeNan Splendor is 1.97 times more volatile than Gansu Jiu Steel. It trades about 0.2 of its potential returns per unit of risk. Gansu Jiu Steel is currently generating about 0.01 per unit of risk. If you would invest  938.00  in HeNan Splendor Science on September 12, 2024 and sell it today you would earn a total of  185.00  from holding HeNan Splendor Science or generate 19.72% return on investment over 90 days.

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

HeNan Splendor Science  vs.  Gansu Jiu Steel

HeNan Splendor Science

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeNan Splendor sustained solid returns over the last few months and may actually be approaching a breakup point.

Gansu Jiu Steel

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Jiu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HeNan Splendor and Gansu Jiu

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

The idea behind HeNan Splendor Science and Gansu Jiu Steel 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.