Correlation Between Luolai Home and Shandong

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

By analyzing existing cross correlation between Luolai Home Textile and Shandong Hi Speed RoadBridge, you can compare the effects of market volatilities on Luolai Home and Shandong 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 Luolai Home with a short position of Shandong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luolai Home and Shandong.

Diversification Opportunities for Luolai Home and Shandong

0.14

Correlation Coefficient

Luolai Home  Shandong

Average diversification

The 3 months correlation between Luolai and Shandong is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Luolai Home Textile and Shandong Hi Speed RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hi Speed and Luolai Home 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 Luolai Home Textile are associated (or correlated) with Shandong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hi Speed has no effect on the direction of Luolai Home i.e., Luolai Home and Shandong go up and down completely randomly.

Pair Corralation between Luolai Home and Shandong

Assuming the 90 days trading horizon Luolai Home Textile is expected to generate 1.45 times more return on investment than Shandong. However, Luolai Home is 1.45 times more volatile than Shandong Hi Speed RoadBridge. It trades about 0.13 of its potential returns per unit of risk. Shandong Hi Speed RoadBridge is currently generating about -0.21 per unit of risk. If you would invest  721.00  in Luolai Home Textile on October 6, 2024 and sell it today you would earn a total of  100.00  from holding Luolai Home Textile or generate 13.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

Luolai Home Textile  vs.  Shandong Hi Speed RoadBridge

Luolai Home Textile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Luolai Home Textile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Luolai Home may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shandong Hi Speed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Hi Speed RoadBridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Luolai Home and Shandong

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

The idea behind Luolai Home Textile and Shandong Hi Speed RoadBridge 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.