Correlation Between China Longyuan and Mengtian Home

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

Diversification Opportunities for China Longyuan and Mengtian Home

0.58

Correlation Coefficient

China Longyuan  Mengtian Home

Very weak diversification

The 3 months correlation between China and Mengtian is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Mengtian Home Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mengtian Home Group 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 Mengtian Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mengtian Home Group has no effect on the direction of China Longyuan i.e., China Longyuan and Mengtian Home go up and down completely randomly.

Pair Corralation between China Longyuan and Mengtian Home

Assuming the 90 days trading horizon China Longyuan Power is expected to under-perform the Mengtian Home. But the stock apears to be less risky and, when comparing its historical volatility, China Longyuan Power is 1.4 times less risky than Mengtian Home. The stock trades about -0.02 of its potential returns per unit of risk. The Mengtian Home Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,098  in Mengtian Home Group on December 30, 2024 and sell it today you would earn a total of  60.00  from holding Mengtian Home Group or generate 5.46% return on investment over 90 days.

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

China Longyuan Power  vs.  Mengtian Home Group

China Longyuan Power

Risk-Adjusted Performance

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 somewhat strong basic indicators, China Longyuan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mengtian Home Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mengtian Home may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China Longyuan and Mengtian Home

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

The idea behind China Longyuan Power and Mengtian Home Group 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.