Correlation Between Luzhou Lao and Central China

Can any of the company-specific risk be diversified away by investing in both Luzhou Lao and Central China 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 Luzhou Lao and Central China into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Luzhou Lao Jiao and Central China Land, you can compare the effects of market volatilities on Luzhou Lao and Central China 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 Luzhou Lao with a short position of Central China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luzhou Lao and Central China.

Diversification Opportunities for Luzhou Lao and Central China

0.6

Correlation Coefficient

Luzhou Lao  Central China

Poor diversification

The 3 months correlation between Luzhou and Central is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Luzhou Lao Jiao and Central China Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central China Land and Luzhou Lao 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 Luzhou Lao Jiao are associated (or correlated) with Central China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central China Land has no effect on the direction of Luzhou Lao i.e., Luzhou Lao and Central China go up and down completely randomly.

Pair Corralation between Luzhou Lao and Central China

Assuming the 90 days trading horizon Luzhou Lao Jiao is expected to generate 1.4 times more return on investment than Central China. However, Luzhou Lao is 1.4 times more volatile than Central China Land. It trades about 0.11 of its potential returns per unit of risk. Central China Land is currently generating about 0.04 per unit of risk. If you would invest  11,269  in Luzhou Lao Jiao on September 4, 2024 and sell it today you would earn a total of  2,549  from holding Luzhou Lao Jiao or generate 22.62% return on investment over 90 days.

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

Luzhou Lao Jiao  vs.  Central China Land

Luzhou Lao Jiao

Risk-Adjusted Performance

8 of 100

OK

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

Central China Land

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Central China Land are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Luzhou Lao and Central China

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

The idea behind Luzhou Lao Jiao and Central China Land 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 CEOs Directory module to screen CEOs from public companies around the world.