Correlation Between Lier Chemical and Xiamen CD

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

Diversification Opportunities for Lier Chemical and Xiamen CD

0.28

Correlation Coefficient

Lier Chemical  Xiamen CD

Modest diversification

The 3 months correlation between Lier and Xiamen is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Lier Chemical Co and Xiamen CD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen CD 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 Xiamen CD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen CD has no effect on the direction of Lier Chemical i.e., Lier Chemical and Xiamen CD go up and down completely randomly.

Pair Corralation between Lier Chemical and Xiamen CD

Assuming the 90 days trading horizon Lier Chemical is expected to generate 45.3 times less return on investment than Xiamen CD. But when comparing it to its historical volatility, Lier Chemical Co is 1.69 times less risky than Xiamen CD. It trades about 0.01 of its potential returns per unit of risk. Xiamen CD is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  940.00  in Xiamen CD on December 4, 2024 and sell it today you would earn a total of  88.00  from holding Xiamen CD or generate 9.36% return on investment over 90 days.

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

Lier Chemical Co  vs.  Xiamen CD

Lier Chemical

Risk-Adjusted Performance

Very Weak

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

Xiamen CD

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen CD are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiamen CD is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lier Chemical and Xiamen CD

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

The idea behind Lier Chemical Co and Xiamen CD 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.