Correlation Between China Longyuan and Xilong Chemical

Can any of the company-specific risk be diversified away by investing in both China Longyuan and Xilong 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 China Longyuan and Xilong Chemical 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 Xilong Chemical Co, you can compare the effects of market volatilities on China Longyuan and Xilong 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 China Longyuan with a short position of Xilong Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Longyuan and Xilong Chemical.

Diversification Opportunities for China Longyuan and Xilong Chemical

0.53

Correlation Coefficient

China Longyuan  Xilong Chemical

Very weak diversification

The 3 months correlation between China and Xilong is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Xilong Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xilong Chemical 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 Xilong Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xilong Chemical has no effect on the direction of China Longyuan i.e., China Longyuan and Xilong Chemical go up and down completely randomly.

Pair Corralation between China Longyuan and Xilong Chemical

Assuming the 90 days trading horizon China Longyuan Power is expected to generate 0.47 times more return on investment than Xilong Chemical. However, China Longyuan Power is 2.11 times less risky than Xilong Chemical. It trades about -0.25 of its potential returns per unit of risk. Xilong Chemical Co is currently generating about -0.27 per unit of risk. If you would invest  1,721  in China Longyuan Power on October 3, 2024 and sell it today you would lose (150.00) from holding China Longyuan Power or give up 8.72% of portfolio value over 90 days.

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

China Longyuan Power  vs.  Xilong Chemical 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.

Xilong Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xilong Chemical 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.

Pair Trading with China Longyuan and Xilong Chemical

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

The idea behind China Longyuan Power and Xilong 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.