Correlation Between Shandong Sanyuan and Jilin Jlu

Can any of the company-specific risk be diversified away by investing in both Shandong Sanyuan and Jilin Jlu 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 Shandong Sanyuan and Jilin Jlu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Sanyuan Biotechnology and Jilin Jlu Communication, you can compare the effects of market volatilities on Shandong Sanyuan and Jilin Jlu 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 Shandong Sanyuan with a short position of Jilin Jlu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Sanyuan and Jilin Jlu.

Diversification Opportunities for Shandong Sanyuan and Jilin Jlu

0.9

Correlation Coefficient

Shandong Sanyuan  Jilin Jlu

Almost no diversification

The 3 months correlation between Shandong and Jilin is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Sanyuan Biotechnology and Jilin Jlu Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Jlu Communication and Shandong Sanyuan 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 Shandong Sanyuan Biotechnology are associated (or correlated) with Jilin Jlu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Jlu Communication has no effect on the direction of Shandong Sanyuan i.e., Shandong Sanyuan and Jilin Jlu go up and down completely randomly.

Pair Corralation between Shandong Sanyuan and Jilin Jlu

Assuming the 90 days trading horizon Shandong Sanyuan is expected to generate 1.44 times less return on investment than Jilin Jlu. But when comparing it to its historical volatility, Shandong Sanyuan Biotechnology is 1.41 times less risky than Jilin Jlu. It trades about 0.12 of its potential returns per unit of risk. Jilin Jlu Communication is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  733.00  in Jilin Jlu Communication on September 20, 2024 and sell it today you would earn a total of  213.00  from holding Jilin Jlu Communication or generate 29.06% return on investment over 90 days.

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

Shandong Sanyuan Biotechnology  vs.  Jilin Jlu Communication

Shandong Sanyuan Bio

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sanyuan Biotechnology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Jilin Jlu Communication

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Jlu Communication are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jilin Jlu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Sanyuan and Jilin Jlu

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

The idea behind Shandong Sanyuan Biotechnology and Jilin Jlu Communication 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.