Correlation Between Lier Chemical and Xinjiang Daqo

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

Diversification Opportunities for Lier Chemical and Xinjiang Daqo

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Lier and Xinjiang is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lier Chemical Co and Xinjiang Daqo New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Daqo New 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 Xinjiang Daqo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Daqo New has no effect on the direction of Lier Chemical i.e., Lier Chemical and Xinjiang Daqo go up and down completely randomly.

Pair Corralation between Lier Chemical and Xinjiang Daqo

Assuming the 90 days trading horizon Lier Chemical Co is expected to under-perform the Xinjiang Daqo. But the stock apears to be less risky and, when comparing its historical volatility, Lier Chemical Co is 1.48 times less risky than Xinjiang Daqo. The stock trades about -0.07 of its potential returns per unit of risk. The Xinjiang Daqo New is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  4,345  in Xinjiang Daqo New on September 20, 2024 and sell it today you would lose (1,832) from holding Xinjiang Daqo New or give up 42.16% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Lier Chemical Co  vs.  Xinjiang Daqo New

 Performance 
       Timeline  
Lier Chemical 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 12 (%) 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.
Xinjiang Daqo New 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Daqo New are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Daqo sustained solid returns over the last few months and may actually be approaching a breakup point.

Lier Chemical and Xinjiang Daqo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lier Chemical and Xinjiang Daqo

The main advantage of trading using opposite Lier Chemical and Xinjiang Daqo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lier Chemical position performs unexpectedly, Xinjiang Daqo 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 Xinjiang Daqo will offset losses from the drop in Xinjiang Daqo's long position.
The idea behind Lier Chemical Co and Xinjiang Daqo New 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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