Correlation Between Advanced Technology and Lao Feng

Can any of the company-specific risk be diversified away by investing in both Advanced Technology and Lao Feng 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 Advanced Technology and Lao Feng into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Advanced Technology Materials and Lao Feng Xiang, you can compare the effects of market volatilities on Advanced Technology and Lao Feng 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 Advanced Technology with a short position of Lao Feng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Technology and Lao Feng.

Diversification Opportunities for Advanced Technology and Lao Feng

-0.56

Correlation Coefficient

Advanced Technology  Lao Feng

Excellent diversification

The 3 months correlation between Advanced and Lao is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Technology Materials and Lao Feng Xiang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lao Feng Xiang and Advanced Technology 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 Advanced Technology Materials are associated (or correlated) with Lao Feng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lao Feng Xiang has no effect on the direction of Advanced Technology i.e., Advanced Technology and Lao Feng go up and down completely randomly.

Pair Corralation between Advanced Technology and Lao Feng

Assuming the 90 days trading horizon Advanced Technology Materials is expected to generate 1.1 times more return on investment than Lao Feng. However, Advanced Technology is 1.1 times more volatile than Lao Feng Xiang. It trades about 0.08 of its potential returns per unit of risk. Lao Feng Xiang is currently generating about -0.05 per unit of risk. If you would invest  977.00  in Advanced Technology Materials on October 9, 2024 and sell it today you would earn a total of  140.00  from holding Advanced Technology Materials or generate 14.33% return on investment over 90 days.

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

Advanced Technology Materials  vs.  Lao Feng Xiang

Advanced Technology

Risk-Adjusted Performance

6 of 100

Insignificant

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

Lao Feng Xiang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lao Feng Xiang 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 Advanced Technology and Lao Feng

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

The idea behind Advanced Technology Materials and Lao Feng Xiang 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.