Correlation Between Gansu Jiu and Lingyuan Iron

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

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

Diversification Opportunities for Gansu Jiu and Lingyuan Iron

0.94

Correlation Coefficient

Gansu Jiu  Lingyuan Iron

Almost no diversification

The 3 months correlation between Gansu and Lingyuan is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Lingyuan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingyuan Iron Steel and Gansu Jiu 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 Gansu Jiu Steel are associated (or correlated) with Lingyuan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingyuan Iron Steel has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Lingyuan Iron go up and down completely randomly.

Pair Corralation between Gansu Jiu and Lingyuan Iron

Assuming the 90 days trading horizon Gansu Jiu is expected to generate 1.04 times less return on investment than Lingyuan Iron. In addition to that, Gansu Jiu is 1.14 times more volatile than Lingyuan Iron Steel. It trades about 0.16 of its total potential returns per unit of risk. Lingyuan Iron Steel is currently generating about 0.19 per unit of volatility. If you would invest  142.00  in Lingyuan Iron Steel on September 3, 2024 and sell it today you would earn a total of  59.00  from holding Lingyuan Iron Steel or generate 41.55% return on investment over 90 days.

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

Gansu Jiu Steel  vs.  Lingyuan Iron Steel

Gansu Jiu Steel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 12 (%) 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.

Lingyuan Iron Steel

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Gansu Jiu and Lingyuan Iron

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

The idea behind Gansu Jiu Steel and Lingyuan Iron 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.

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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 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.