Correlation Between Xiandai Investment and Shandong Longquan

Can any of the company-specific risk be diversified away by investing in both Xiandai Investment and Shandong Longquan 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 Xiandai Investment and Shandong Longquan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xiandai Investment Co and Shandong Longquan Pipeline, you can compare the effects of market volatilities on Xiandai Investment and Shandong Longquan 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 Xiandai Investment with a short position of Shandong Longquan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiandai Investment and Shandong Longquan.

Diversification Opportunities for Xiandai Investment and Shandong Longquan

0.71

Correlation Coefficient

Xiandai Investment  Shandong Longquan

Poor diversification

The 3 months correlation between Xiandai and Shandong is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Xiandai Investment Co and Shandong Longquan Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longquan and Xiandai Investment 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 Xiandai Investment Co are associated (or correlated) with Shandong Longquan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longquan has no effect on the direction of Xiandai Investment i.e., Xiandai Investment and Shandong Longquan go up and down completely randomly.

Pair Corralation between Xiandai Investment and Shandong Longquan

Assuming the 90 days trading horizon Xiandai Investment Co is expected to under-perform the Shandong Longquan. But the stock apears to be less risky and, when comparing its historical volatility, Xiandai Investment Co is 1.37 times less risky than Shandong Longquan. The stock trades about -0.11 of its potential returns per unit of risk. The Shandong Longquan Pipeline is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  492.00  in Shandong Longquan Pipeline on December 1, 2024 and sell it today you would lose (47.00) from holding Shandong Longquan Pipeline or give up 9.55% of portfolio value over 90 days.

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

Xiandai Investment Co  vs.  Shandong Longquan Pipeline

Xiandai Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiandai Investment Co 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.

Shandong Longquan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Longquan Pipeline 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 Xiandai Investment and Shandong Longquan

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

The idea behind Xiandai Investment Co and Shandong Longquan Pipeline 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.