Correlation Between Jiahe Foods and Guangdong Liantai

Can any of the company-specific risk be diversified away by investing in both Jiahe Foods and Guangdong Liantai 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 Jiahe Foods and Guangdong Liantai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jiahe Foods Industry and Guangdong Liantai Environmental, you can compare the effects of market volatilities on Jiahe Foods and Guangdong Liantai 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 Jiahe Foods with a short position of Guangdong Liantai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiahe Foods and Guangdong Liantai.

Diversification Opportunities for Jiahe Foods and Guangdong Liantai

0.84

Correlation Coefficient

Jiahe Foods  Guangdong Liantai

Very poor diversification

The 3 months correlation between Jiahe and Guangdong is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Jiahe Foods Industry and Guangdong Liantai Environmenta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Liantai and Jiahe Foods 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 Jiahe Foods Industry are associated (or correlated) with Guangdong Liantai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Liantai has no effect on the direction of Jiahe Foods i.e., Jiahe Foods and Guangdong Liantai go up and down completely randomly.

Pair Corralation between Jiahe Foods and Guangdong Liantai

Assuming the 90 days trading horizon Jiahe Foods is expected to generate 1.0 times less return on investment than Guangdong Liantai. In addition to that, Jiahe Foods is 1.4 times more volatile than Guangdong Liantai Environmental. It trades about 0.16 of its total potential returns per unit of risk. Guangdong Liantai Environmental is currently generating about 0.22 per unit of volatility. If you would invest  316.00  in Guangdong Liantai Environmental on September 5, 2024 and sell it today you would earn a total of  123.00  from holding Guangdong Liantai Environmental or generate 38.92% return on investment over 90 days.

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

Jiahe Foods Industry  vs.  Guangdong Liantai Environmenta

Jiahe Foods Industry

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jiahe Foods Industry are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiahe Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Liantai

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Liantai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiahe Foods and Guangdong Liantai

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

The idea behind Jiahe Foods Industry and Guangdong Liantai Environmental 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.