Correlation Between China Longyuan and Shanghai Rongtai

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

Diversification Opportunities for China Longyuan and Shanghai Rongtai

0.31

Correlation Coefficient

China Longyuan  Shanghai Rongtai

Weak diversification

The 3 months correlation between China and Shanghai is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health 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 Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of China Longyuan i.e., China Longyuan and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between China Longyuan and Shanghai Rongtai

Assuming the 90 days trading horizon China Longyuan is expected to generate 80.89 times less return on investment than Shanghai Rongtai. In addition to that, China Longyuan is 1.15 times more volatile than Shanghai Rongtai Health. It trades about 0.0 of its total potential returns per unit of risk. Shanghai Rongtai Health is currently generating about 0.03 per unit of volatility. If you would invest  1,355  in Shanghai Rongtai Health on October 21, 2024 and sell it today you would earn a total of  45.00  from holding Shanghai Rongtai Health or generate 3.32% return on investment over 90 days.

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

China Longyuan Power  vs.  Shanghai Rongtai Health

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 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.

Shanghai Rongtai Health

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Rongtai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Longyuan and Shanghai Rongtai

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

The idea behind China Longyuan Power and Shanghai Rongtai Health 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 CEOs Directory module to screen CEOs from public companies around the world.