Correlation Between Gansu Jiu and Sinocat Environmental

Can any of the company-specific risk be diversified away by investing in both Gansu Jiu and Sinocat Environmental 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 Sinocat Environmental 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 Sinocat Environmental Technology, you can compare the effects of market volatilities on Gansu Jiu and Sinocat Environmental 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 Sinocat Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gansu Jiu and Sinocat Environmental.

Diversification Opportunities for Gansu Jiu and Sinocat Environmental

0.74

Correlation Coefficient

Gansu Jiu  Sinocat Environmental

Poor diversification

The 3 months correlation between Gansu and Sinocat is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Jiu Steel and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental 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 Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Gansu Jiu i.e., Gansu Jiu and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Gansu Jiu and Sinocat Environmental

Assuming the 90 days trading horizon Gansu Jiu is expected to generate 1.49 times less return on investment than Sinocat Environmental. But when comparing it to its historical volatility, Gansu Jiu Steel is 1.06 times less risky than Sinocat Environmental. It trades about 0.21 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,216  in Sinocat Environmental Technology on September 13, 2024 and sell it today you would earn a total of  1,171  from holding Sinocat Environmental Technology or generate 96.3% return on investment over 90 days.

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

Gansu Jiu Steel  vs.  Sinocat Environmental Technolo

Gansu Jiu Steel

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 16 (%) 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.

Sinocat Environmental

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sinocat Environmental Technology are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinocat Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gansu Jiu and Sinocat Environmental

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

The idea behind Gansu Jiu Steel and Sinocat Environmental Technology 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.