Correlation Between Luzhou Lao and Changchun Engley

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

Diversification Opportunities for Luzhou Lao and Changchun Engley

0.83

Correlation Coefficient

Luzhou Lao  Changchun Engley

Very poor diversification

The 3 months correlation between Luzhou and Changchun is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Luzhou Lao Jiao and Changchun Engley Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun Engley Aut 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 Changchun Engley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun Engley Aut has no effect on the direction of Luzhou Lao i.e., Luzhou Lao and Changchun Engley go up and down completely randomly.

Pair Corralation between Luzhou Lao and Changchun Engley

Assuming the 90 days trading horizon Luzhou Lao Jiao is expected to under-perform the Changchun Engley. But the stock apears to be less risky and, when comparing its historical volatility, Luzhou Lao Jiao is 1.14 times less risky than Changchun Engley. The stock trades about -0.09 of its potential returns per unit of risk. The Changchun Engley Automobile is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  397.00  in Changchun Engley Automobile on October 24, 2024 and sell it today you would lose (37.00) from holding Changchun Engley Automobile or give up 9.32% of portfolio value over 90 days.

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

Luzhou Lao Jiao  vs.  Changchun Engley Automobile

Luzhou Lao Jiao

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luzhou Lao Jiao has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Changchun Engley Aut

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Changchun Engley Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Luzhou Lao and Changchun Engley

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

The idea behind Luzhou Lao Jiao and Changchun Engley Automobile 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.