Correlation Between Sportsoul and Shanxi Lanhua

Can any of the company-specific risk be diversified away by investing in both Sportsoul and Shanxi Lanhua 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 Sportsoul and Shanxi Lanhua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sportsoul Co Ltd and Shanxi Lanhua Sci Tech, you can compare the effects of market volatilities on Sportsoul and Shanxi Lanhua 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 Sportsoul with a short position of Shanxi Lanhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sportsoul and Shanxi Lanhua.

Diversification Opportunities for Sportsoul and Shanxi Lanhua

0.44

Correlation Coefficient

Sportsoul  Shanxi Lanhua

Very weak diversification

The 3 months correlation between Sportsoul and Shanxi is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sportsoul Co Ltd and Shanxi Lanhua Sci Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanxi Lanhua Sci and Sportsoul 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 Sportsoul Co Ltd are associated (or correlated) with Shanxi Lanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanxi Lanhua Sci has no effect on the direction of Sportsoul i.e., Sportsoul and Shanxi Lanhua go up and down completely randomly.

Pair Corralation between Sportsoul and Shanxi Lanhua

Assuming the 90 days trading horizon Sportsoul Co Ltd is expected to generate 1.73 times more return on investment than Shanxi Lanhua. However, Sportsoul is 1.73 times more volatile than Shanxi Lanhua Sci Tech. It trades about 0.02 of its potential returns per unit of risk. Shanxi Lanhua Sci Tech is currently generating about 0.01 per unit of risk. If you would invest  1,480  in Sportsoul Co Ltd on September 14, 2024 and sell it today you would lose (45.00) from holding Sportsoul Co Ltd or give up 3.04% of portfolio value over 90 days.

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

Sportsoul Co Ltd  vs.  Shanxi Lanhua Sci Tech

Sportsoul

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sportsoul Co Ltd are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sportsoul sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanxi Lanhua Sci

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanxi Lanhua Sci Tech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanxi Lanhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sportsoul and Shanxi Lanhua

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

The idea behind Sportsoul Co Ltd and Shanxi Lanhua Sci Tech 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..