Correlation Between Luolai Home and Beijing Sanyuan

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

Diversification Opportunities for Luolai Home and Beijing Sanyuan

0.84

Correlation Coefficient

Luolai Home  Beijing Sanyuan

Very poor diversification

The 3 months correlation between Luolai and Beijing is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Luolai Home Textile and Beijing Sanyuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Sanyuan Foods 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 Beijing Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Sanyuan Foods has no effect on the direction of Luolai Home i.e., Luolai Home and Beijing Sanyuan go up and down completely randomly.

Pair Corralation between Luolai Home and Beijing Sanyuan

Assuming the 90 days trading horizon Luolai Home Textile is expected to generate 1.24 times more return on investment than Beijing Sanyuan. However, Luolai Home is 1.24 times more volatile than Beijing Sanyuan Foods. It trades about 0.2 of its potential returns per unit of risk. Beijing Sanyuan Foods is currently generating about 0.22 per unit of risk. If you would invest  629.00  in Luolai Home Textile on September 12, 2024 and sell it today you would earn a total of  216.00  from holding Luolai Home Textile or generate 34.34% return on investment over 90 days.

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

Luolai Home Textile  vs.  Beijing Sanyuan Foods

Luolai Home Textile

Risk-Adjusted Performance

16 of 100

Solid

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

Beijing Sanyuan Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Sanyuan Foods are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luolai Home and Beijing Sanyuan

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

The idea behind Luolai Home Textile and Beijing Sanyuan Foods 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.