Correlation Between Hubei Dinglong and Beijing Jiaman

Can any of the company-specific risk be diversified away by investing in both Hubei Dinglong and Beijing Jiaman 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 Hubei Dinglong and Beijing Jiaman into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hubei Dinglong Chemical and Beijing Jiaman Dress, you can compare the effects of market volatilities on Hubei Dinglong and Beijing Jiaman 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 Hubei Dinglong with a short position of Beijing Jiaman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Dinglong and Beijing Jiaman.

Diversification Opportunities for Hubei Dinglong and Beijing Jiaman

0.88

Correlation Coefficient

Hubei Dinglong  Beijing Jiaman

Very poor diversification

The 3 months correlation between Hubei and Beijing is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Dinglong Chemical and Beijing Jiaman Dress in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Jiaman Dress and Hubei Dinglong 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 Hubei Dinglong Chemical are associated (or correlated) with Beijing Jiaman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Jiaman Dress has no effect on the direction of Hubei Dinglong i.e., Hubei Dinglong and Beijing Jiaman go up and down completely randomly.

Pair Corralation between Hubei Dinglong and Beijing Jiaman

Assuming the 90 days trading horizon Hubei Dinglong Chemical is expected to under-perform the Beijing Jiaman. But the stock apears to be less risky and, when comparing its historical volatility, Hubei Dinglong Chemical is 1.27 times less risky than Beijing Jiaman. The stock trades about -0.09 of its potential returns per unit of risk. The Beijing Jiaman Dress is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,094  in Beijing Jiaman Dress on September 21, 2024 and sell it today you would earn a total of  51.00  from holding Beijing Jiaman Dress or generate 2.44% return on investment over 90 days.

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

Hubei Dinglong Chemical  vs.  Beijing Jiaman Dress

Hubei Dinglong Chemical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Dinglong sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Jiaman Dress

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Jiaman Dress are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Jiaman sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hubei Dinglong and Beijing Jiaman

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

The idea behind Hubei Dinglong Chemical and Beijing Jiaman Dress 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.