Correlation Between Financial Street and Loongson Technology

Can any of the company-specific risk be diversified away by investing in both Financial Street and Loongson Technology 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 Financial Street and Loongson Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Financial Street Holdings and Loongson Technology Corp, you can compare the effects of market volatilities on Financial Street and Loongson Technology 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 Financial Street with a short position of Loongson Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Street and Loongson Technology.

Diversification Opportunities for Financial Street and Loongson Technology

0.7

Correlation Coefficient

Financial Street  Loongson Technology

Poor diversification

The 3 months correlation between Financial and Loongson is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Financial Street Holdings and Loongson Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loongson Technology Corp and Financial Street 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 Financial Street Holdings are associated (or correlated) with Loongson Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loongson Technology Corp has no effect on the direction of Financial Street i.e., Financial Street and Loongson Technology go up and down completely randomly.

Pair Corralation between Financial Street and Loongson Technology

Assuming the 90 days trading horizon Financial Street Holdings is expected to under-perform the Loongson Technology. But the stock apears to be less risky and, when comparing its historical volatility, Financial Street Holdings is 1.46 times less risky than Loongson Technology. The stock trades about -0.02 of its potential returns per unit of risk. The Loongson Technology Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10,150  in Loongson Technology Corp on October 10, 2024 and sell it today you would earn a total of  2,507  from holding Loongson Technology Corp or generate 24.7% return on investment over 90 days.

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

Financial Street Holdings  vs.  Loongson Technology Corp

Financial Street Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Street Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Loongson Technology Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Financial Street and Loongson Technology

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

The idea behind Financial Street Holdings and Loongson Technology Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.