Correlation Between Changjiang Jinggong and Guilin Seamild

Can any of the company-specific risk be diversified away by investing in both Changjiang Jinggong and Guilin Seamild 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 Changjiang Jinggong and Guilin Seamild into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changjiang Jinggong Steel and Guilin Seamild Foods, you can compare the effects of market volatilities on Changjiang Jinggong and Guilin Seamild 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 Changjiang Jinggong with a short position of Guilin Seamild. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changjiang Jinggong and Guilin Seamild.

Diversification Opportunities for Changjiang Jinggong and Guilin Seamild

0.85

Correlation Coefficient

Changjiang Jinggong  Guilin Seamild

Very poor diversification

The 3 months correlation between Changjiang and Guilin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Changjiang Jinggong Steel and Guilin Seamild Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guilin Seamild Foods and Changjiang Jinggong 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 Changjiang Jinggong Steel are associated (or correlated) with Guilin Seamild. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guilin Seamild Foods has no effect on the direction of Changjiang Jinggong i.e., Changjiang Jinggong and Guilin Seamild go up and down completely randomly.

Pair Corralation between Changjiang Jinggong and Guilin Seamild

Assuming the 90 days trading horizon Changjiang Jinggong is expected to generate 4.79 times less return on investment than Guilin Seamild. But when comparing it to its historical volatility, Changjiang Jinggong Steel is 2.09 times less risky than Guilin Seamild. It trades about 0.12 of its potential returns per unit of risk. Guilin Seamild Foods is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,386  in Guilin Seamild Foods on September 23, 2024 and sell it today you would earn a total of  263.00  from holding Guilin Seamild Foods or generate 18.98% return on investment over 90 days.

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

Changjiang Jinggong Steel  vs.  Guilin Seamild Foods

Changjiang Jinggong Steel

Risk-Adjusted Performance

14 of 100

Good

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

Guilin Seamild Foods

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guilin Seamild Foods are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guilin Seamild sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changjiang Jinggong and Guilin Seamild

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

The idea behind Changjiang Jinggong Steel and Guilin Seamild Foods 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.