Correlation Between Jiangsu GDK and Shandong Sanyuan

Can any of the company-specific risk be diversified away by investing in both Jiangsu GDK and Shandong Sanyuan 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 Jiangsu GDK and Shandong Sanyuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jiangsu GDK Biotechnology and Shandong Sanyuan Biotechnology, you can compare the effects of market volatilities on Jiangsu GDK and Shandong Sanyuan 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 Jiangsu GDK with a short position of Shandong Sanyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangsu GDK and Shandong Sanyuan.

Diversification Opportunities for Jiangsu GDK and Shandong Sanyuan

0.77

Correlation Coefficient

Jiangsu GDK  Shandong Sanyuan

Poor diversification

The 3 months correlation between Jiangsu and Shandong is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu GDK Biotechnology and Shandong Sanyuan Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Sanyuan Bio and Jiangsu GDK 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 Jiangsu GDK Biotechnology are associated (or correlated) with Shandong Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Sanyuan Bio has no effect on the direction of Jiangsu GDK i.e., Jiangsu GDK and Shandong Sanyuan go up and down completely randomly.

Pair Corralation between Jiangsu GDK and Shandong Sanyuan

Assuming the 90 days trading horizon Jiangsu GDK Biotechnology is expected to under-perform the Shandong Sanyuan. In addition to that, Jiangsu GDK is 1.32 times more volatile than Shandong Sanyuan Biotechnology. It trades about -0.32 of its total potential returns per unit of risk. Shandong Sanyuan Biotechnology is currently generating about 0.07 per unit of volatility. If you would invest  2,723  in Shandong Sanyuan Biotechnology on September 28, 2024 and sell it today you would earn a total of  77.00  from holding Shandong Sanyuan Biotechnology or generate 2.83% return on investment over 90 days.

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

Jiangsu GDK Biotechnology  vs.  Shandong Sanyuan Biotechnology

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jiangsu GDK Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jiangsu GDK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Sanyuan Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Sanyuan Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong Sanyuan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Jiangsu GDK and Shandong Sanyuan

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

The idea behind Jiangsu GDK Biotechnology and Shandong Sanyuan Biotechnology 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.