Correlation Between China Longyuan and FSPG Hi

Can any of the company-specific risk be diversified away by investing in both China Longyuan and FSPG Hi 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 China Longyuan and FSPG Hi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Longyuan Power and FSPG Hi Tech Co, you can compare the effects of market volatilities on China Longyuan and FSPG Hi 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 China Longyuan with a short position of FSPG Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Longyuan and FSPG Hi.

Diversification Opportunities for China Longyuan and FSPG Hi

0.38

Correlation Coefficient

China Longyuan  FSPG Hi

Weak diversification

The 3 months correlation between China and FSPG is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and FSPG Hi Tech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FSPG Hi Tech and China Longyuan 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 China Longyuan Power are associated (or correlated) with FSPG Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FSPG Hi Tech has no effect on the direction of China Longyuan i.e., China Longyuan and FSPG Hi go up and down completely randomly.

Pair Corralation between China Longyuan and FSPG Hi

Assuming the 90 days trading horizon China Longyuan Power is expected to generate 0.65 times more return on investment than FSPG Hi. However, China Longyuan Power is 1.54 times less risky than FSPG Hi. It trades about -0.36 of its potential returns per unit of risk. FSPG Hi Tech Co is currently generating about -0.35 per unit of risk. If you would invest  1,692  in China Longyuan Power on October 8, 2024 and sell it today you would lose (211.00) from holding China Longyuan Power or give up 12.47% of portfolio value over 90 days.

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

China Longyuan Power  vs.  FSPG Hi Tech Co

China Longyuan Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Longyuan Power 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.

FSPG Hi Tech

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with China Longyuan and FSPG Hi

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

The idea behind China Longyuan Power and FSPG Hi Tech 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.