Correlation Between LianChuang Electronic and Guangdong Ellington

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

By analyzing existing cross correlation between LianChuang Electronic Technology and Guangdong Ellington Electronics, you can compare the effects of market volatilities on LianChuang Electronic and Guangdong Ellington 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 LianChuang Electronic with a short position of Guangdong Ellington. Check out your portfolio center. Please also check ongoing floating volatility patterns of LianChuang Electronic and Guangdong Ellington.

Diversification Opportunities for LianChuang Electronic and Guangdong Ellington

0.8

Correlation Coefficient

LianChuang Electronic  Guangdong Ellington

Very poor diversification

The 3 months correlation between LianChuang and Guangdong is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding LianChuang Electronic Technolo and Guangdong Ellington Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Ellington and LianChuang Electronic 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 LianChuang Electronic Technology are associated (or correlated) with Guangdong Ellington. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Ellington has no effect on the direction of LianChuang Electronic i.e., LianChuang Electronic and Guangdong Ellington go up and down completely randomly.

Pair Corralation between LianChuang Electronic and Guangdong Ellington

Assuming the 90 days trading horizon LianChuang Electronic Technology is expected to generate 1.46 times more return on investment than Guangdong Ellington. However, LianChuang Electronic is 1.46 times more volatile than Guangdong Ellington Electronics. It trades about 0.08 of its potential returns per unit of risk. Guangdong Ellington Electronics is currently generating about 0.01 per unit of risk. If you would invest  986.00  in LianChuang Electronic Technology on December 28, 2024 and sell it today you would earn a total of  148.00  from holding LianChuang Electronic Technology or generate 15.01% return on investment over 90 days.

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

LianChuang Electronic Technolo  vs.  Guangdong Ellington Electronic

LianChuang Electronic

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LianChuang Electronic Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LianChuang Electronic sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Ellington

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Ellington Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Ellington is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LianChuang Electronic and Guangdong Ellington

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

The idea behind LianChuang Electronic Technology and Guangdong Ellington Electronics 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.