Correlation Between Ningxia Younglight and Liaoning Dingjide

Can any of the company-specific risk be diversified away by investing in both Ningxia Younglight and Liaoning Dingjide 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 Ningxia Younglight and Liaoning Dingjide into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ningxia Younglight Chemicals and Liaoning Dingjide Petrochemical, you can compare the effects of market volatilities on Ningxia Younglight and Liaoning Dingjide 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 Ningxia Younglight with a short position of Liaoning Dingjide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningxia Younglight and Liaoning Dingjide.

Diversification Opportunities for Ningxia Younglight and Liaoning Dingjide

0.39

Correlation Coefficient

Ningxia Younglight  Liaoning Dingjide

Weak diversification

The 3 months correlation between Ningxia and Liaoning is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ningxia Younglight Chemicals and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide and Ningxia Younglight 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 Ningxia Younglight Chemicals are associated (or correlated) with Liaoning Dingjide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Dingjide has no effect on the direction of Ningxia Younglight i.e., Ningxia Younglight and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Ningxia Younglight and Liaoning Dingjide

Assuming the 90 days trading horizon Ningxia Younglight is expected to generate 2.05 times less return on investment than Liaoning Dingjide. But when comparing it to its historical volatility, Ningxia Younglight Chemicals is 1.41 times less risky than Liaoning Dingjide. It trades about 0.01 of its potential returns per unit of risk. Liaoning Dingjide Petrochemical is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,221  in Liaoning Dingjide Petrochemical on December 26, 2024 and sell it today you would lose (22.00) from holding Liaoning Dingjide Petrochemical or give up 0.68% of portfolio value over 90 days.

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

Ningxia Younglight Chemicals  vs.  Liaoning Dingjide Petrochemica

Ningxia Younglight

Risk-Adjusted Performance

Very Weak

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

Liaoning Dingjide

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Ningxia Younglight and Liaoning Dingjide

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

The idea behind Ningxia Younglight Chemicals and Liaoning Dingjide Petrochemical 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.