Correlation Between Luzhou Lao and Shenzhen Mindray

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Can any of the company-specific risk be diversified away by investing in both Luzhou Lao and Shenzhen Mindray 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 Shenzhen Mindray 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 Shenzhen Mindray Bio Medical, you can compare the effects of market volatilities on Luzhou Lao and Shenzhen Mindray 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 Shenzhen Mindray. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luzhou Lao and Shenzhen Mindray.

Diversification Opportunities for Luzhou Lao and Shenzhen Mindray

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Luzhou and Shenzhen is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Luzhou Lao Jiao and Shenzhen Mindray Bio Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Mindray Bio 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 Shenzhen Mindray. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Mindray Bio has no effect on the direction of Luzhou Lao i.e., Luzhou Lao and Shenzhen Mindray go up and down completely randomly.

Pair Corralation between Luzhou Lao and Shenzhen Mindray

Assuming the 90 days trading horizon Luzhou Lao Jiao is expected to generate 1.08 times more return on investment than Shenzhen Mindray. However, Luzhou Lao is 1.08 times more volatile than Shenzhen Mindray Bio Medical. It trades about 0.17 of its potential returns per unit of risk. Shenzhen Mindray Bio Medical is currently generating about 0.08 per unit of risk. If you would invest  10,260  in Luzhou Lao Jiao on September 12, 2024 and sell it today you would earn a total of  3,909  from holding Luzhou Lao Jiao or generate 38.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Luzhou Lao Jiao  vs.  Shenzhen Mindray Bio Medical

 Performance 
       Timeline  
Luzhou Lao Jiao 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Luzhou Lao Jiao are ranked lower than 13 (%) 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.
Shenzhen Mindray Bio 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Mindray Bio Medical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Mindray sustained solid returns over the last few months and may actually be approaching a breakup point.

Luzhou Lao and Shenzhen Mindray Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Luzhou Lao and Shenzhen Mindray

The main advantage of trading using opposite Luzhou Lao and Shenzhen Mindray positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Luzhou Lao position performs unexpectedly, Shenzhen Mindray 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 Shenzhen Mindray will offset losses from the drop in Shenzhen Mindray's long position.
The idea behind Luzhou Lao Jiao and Shenzhen Mindray Bio Medical 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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