Correlation Between China Longyuan and Pylon Technologies

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

Diversification Opportunities for China Longyuan and Pylon Technologies

0.82

Correlation Coefficient

China Longyuan  Pylon Technologies

Very poor diversification

The 3 months correlation between China and Pylon is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Pylon Technologies Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pylon Technologies 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 Pylon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pylon Technologies has no effect on the direction of China Longyuan i.e., China Longyuan and Pylon Technologies go up and down completely randomly.

Pair Corralation between China Longyuan and Pylon Technologies

Assuming the 90 days trading horizon China Longyuan Power is expected to under-perform the Pylon Technologies. But the stock apears to be less risky and, when comparing its historical volatility, China Longyuan Power is 1.57 times less risky than Pylon Technologies. The stock trades about -0.05 of its potential returns per unit of risk. The Pylon Technologies Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,245  in Pylon Technologies Co on December 25, 2024 and sell it today you would lose (159.00) from holding Pylon Technologies Co or give up 3.75% of portfolio value over 90 days.

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

China Longyuan Power  vs.  Pylon Technologies Co

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.

Pylon Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pylon Technologies Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Pylon Technologies 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 Pylon Technologies

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

The idea behind China Longyuan Power and Pylon Technologies 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.