Correlation Between Cofco Biochemical and Lier Chemical

Can any of the company-specific risk be diversified away by investing in both Cofco Biochemical and Lier Chemical 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 Cofco Biochemical and Lier Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cofco Biochemical Anhui and Lier Chemical Co, you can compare the effects of market volatilities on Cofco Biochemical and Lier Chemical 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 Cofco Biochemical with a short position of Lier Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cofco Biochemical and Lier Chemical.

Diversification Opportunities for Cofco Biochemical and Lier Chemical

0.91

Correlation Coefficient

Cofco Biochemical  Lier Chemical

Almost no diversification

The 3 months correlation between Cofco and Lier is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Cofco Biochemical Anhui and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical and Cofco Biochemical 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 Cofco Biochemical Anhui are associated (or correlated) with Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Cofco Biochemical i.e., Cofco Biochemical and Lier Chemical go up and down completely randomly.

Pair Corralation between Cofco Biochemical and Lier Chemical

Assuming the 90 days trading horizon Cofco Biochemical Anhui is expected to under-perform the Lier Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Cofco Biochemical Anhui is 1.72 times less risky than Lier Chemical. The stock trades about -0.02 of its potential returns per unit of risk. The Lier Chemical Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  866.00  in Lier Chemical Co on September 20, 2024 and sell it today you would lose (1.00) from holding Lier Chemical Co or give up 0.12% of portfolio value over 90 days.

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

Cofco Biochemical Anhui  vs.  Lier Chemical Co

Cofco Biochemical Anhui

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cofco Biochemical Anhui are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cofco Biochemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Lier Chemical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lier Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cofco Biochemical and Lier Chemical

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

The idea behind Cofco Biochemical Anhui and Lier Chemical Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.