Correlation Between China Longyuan and Tianjin Jingwei

Can any of the company-specific risk be diversified away by investing in both China Longyuan and Tianjin Jingwei 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 Tianjin Jingwei 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 Tianjin Jingwei Electric, you can compare the effects of market volatilities on China Longyuan and Tianjin Jingwei 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 Tianjin Jingwei. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Longyuan and Tianjin Jingwei.

Diversification Opportunities for China Longyuan and Tianjin Jingwei

0.62

Correlation Coefficient

China Longyuan  Tianjin Jingwei

Poor diversification

The 3 months correlation between China and Tianjin is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Tianjin Jingwei Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Jingwei Electric 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 Tianjin Jingwei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Jingwei Electric has no effect on the direction of China Longyuan i.e., China Longyuan and Tianjin Jingwei go up and down completely randomly.

Pair Corralation between China Longyuan and Tianjin Jingwei

Assuming the 90 days trading horizon China Longyuan Power is expected to generate 0.55 times more return on investment than Tianjin Jingwei. However, China Longyuan Power is 1.83 times less risky than Tianjin Jingwei. It trades about -0.29 of its potential returns per unit of risk. Tianjin Jingwei Electric is currently generating about -0.36 per unit of risk. If you would invest  1,840  in China Longyuan Power on October 8, 2024 and sell it today you would lose (359.00) from holding China Longyuan Power or give up 19.51% of portfolio value over 90 days.

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

China Longyuan Power  vs.  Tianjin Jingwei Electric

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Tianjin Jingwei Electric

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Jingwei Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Jingwei sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Longyuan and Tianjin Jingwei

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

The idea behind China Longyuan Power and Tianjin Jingwei Electric 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.