Correlation Between TongFu Microelectronics and Lonkey Industrial

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

By analyzing existing cross correlation between TongFu Microelectronics Co and Lonkey Industrial Co, you can compare the effects of market volatilities on TongFu Microelectronics and Lonkey Industrial 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 TongFu Microelectronics with a short position of Lonkey Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of TongFu Microelectronics and Lonkey Industrial.

Diversification Opportunities for TongFu Microelectronics and Lonkey Industrial

0.73

Correlation Coefficient

TongFu Microelectronics  Lonkey Industrial

Poor diversification

The 3 months correlation between TongFu and Lonkey is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding TongFu Microelectronics Co and Lonkey Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lonkey Industrial and TongFu Microelectronics 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 TongFu Microelectronics Co are associated (or correlated) with Lonkey Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lonkey Industrial has no effect on the direction of TongFu Microelectronics i.e., TongFu Microelectronics and Lonkey Industrial go up and down completely randomly.

Pair Corralation between TongFu Microelectronics and Lonkey Industrial

Assuming the 90 days trading horizon TongFu Microelectronics Co is expected to generate 0.87 times more return on investment than Lonkey Industrial. However, TongFu Microelectronics Co is 1.15 times less risky than Lonkey Industrial. It trades about -0.1 of its potential returns per unit of risk. Lonkey Industrial Co is currently generating about -0.15 per unit of risk. If you would invest  3,148  in TongFu Microelectronics Co on October 2, 2024 and sell it today you would lose (193.00) from holding TongFu Microelectronics Co or give up 6.13% of portfolio value over 90 days.

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

TongFu Microelectronics Co  vs.  Lonkey Industrial Co

TongFu Microelectronics

Risk-Adjusted Performance

6 of 100

Modest

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

Lonkey Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with TongFu Microelectronics and Lonkey Industrial

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

The idea behind TongFu Microelectronics Co and Lonkey Industrial 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.