Correlation Between Lier Chemical and Sanbo Hospital

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

By analyzing existing cross correlation between Lier Chemical Co and Sanbo Hospital Management, you can compare the effects of market volatilities on Lier Chemical and Sanbo Hospital 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 Lier Chemical with a short position of Sanbo Hospital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lier Chemical and Sanbo Hospital.

Diversification Opportunities for Lier Chemical and Sanbo Hospital

0.9

Correlation Coefficient

Lier Chemical  Sanbo Hospital

Almost no diversification

The 3 months correlation between Lier and Sanbo is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Lier Chemical Co and Sanbo Hospital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanbo Hospital Management and Lier Chemical 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 Lier Chemical Co are associated (or correlated) with Sanbo Hospital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanbo Hospital Management has no effect on the direction of Lier Chemical i.e., Lier Chemical and Sanbo Hospital go up and down completely randomly.

Pair Corralation between Lier Chemical and Sanbo Hospital

Assuming the 90 days trading horizon Lier Chemical is expected to generate 1.83 times less return on investment than Sanbo Hospital. But when comparing it to its historical volatility, Lier Chemical Co is 1.56 times less risky than Sanbo Hospital. It trades about 0.17 of its potential returns per unit of risk. Sanbo Hospital Management is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,010  in Sanbo Hospital Management on September 15, 2024 and sell it today you would earn a total of  1,765  from holding Sanbo Hospital Management or generate 58.64% return on investment over 90 days.

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

Lier Chemical Co  vs.  Sanbo Hospital Management

Lier Chemical

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lier Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Sanbo Hospital Management

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sanbo Hospital Management are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sanbo Hospital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lier Chemical and Sanbo Hospital

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

The idea behind Lier Chemical Co and Sanbo Hospital Management 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.