Correlation Between Henan Lantian and Jizhong Energy

Can any of the company-specific risk be diversified away by investing in both Henan Lantian and Jizhong Energy 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 Henan Lantian and Jizhong Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Henan Lantian Gas and Jizhong Energy Resources, you can compare the effects of market volatilities on Henan Lantian and Jizhong Energy 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 Henan Lantian with a short position of Jizhong Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Henan Lantian and Jizhong Energy.

Diversification Opportunities for Henan Lantian and Jizhong Energy

-0.56

Correlation Coefficient

Henan Lantian  Jizhong Energy

Excellent diversification

The 3 months correlation between Henan and Jizhong is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Henan Lantian Gas and Jizhong Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jizhong Energy Resources and Henan Lantian 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 Henan Lantian Gas are associated (or correlated) with Jizhong Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jizhong Energy Resources has no effect on the direction of Henan Lantian i.e., Henan Lantian and Jizhong Energy go up and down completely randomly.

Pair Corralation between Henan Lantian and Jizhong Energy

Assuming the 90 days trading horizon Henan Lantian Gas is expected to under-perform the Jizhong Energy. But the stock apears to be less risky and, when comparing its historical volatility, Henan Lantian Gas is 1.02 times less risky than Jizhong Energy. The stock trades about -0.1 of its potential returns per unit of risk. The Jizhong Energy Resources is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  540.00  in Jizhong Energy Resources on September 1, 2024 and sell it today you would earn a total of  83.00  from holding Jizhong Energy Resources or generate 15.37% return on investment over 90 days.

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

Henan Lantian Gas  vs.  Jizhong Energy Resources

Henan Lantian Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Henan Lantian Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Jizhong Energy Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jizhong Energy Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jizhong Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Henan Lantian and Jizhong Energy

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

The idea behind Henan Lantian Gas and Jizhong Energy Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.