Correlation Between Changchun and Lotus Health

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

By analyzing existing cross correlation between Changchun UP Optotech and Lotus Health Group, you can compare the effects of market volatilities on Changchun and Lotus Health 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 Changchun with a short position of Lotus Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun and Lotus Health.

Diversification Opportunities for Changchun and Lotus Health

0.86

Correlation Coefficient

Changchun  Lotus Health

Very poor diversification

The 3 months correlation between Changchun and Lotus is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech and Lotus Health Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Health Group and Changchun 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 Changchun UP Optotech are associated (or correlated) with Lotus Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Health Group has no effect on the direction of Changchun i.e., Changchun and Lotus Health go up and down completely randomly.

Pair Corralation between Changchun and Lotus Health

Assuming the 90 days trading horizon Changchun is expected to generate 1.45 times less return on investment than Lotus Health. In addition to that, Changchun is 1.16 times more volatile than Lotus Health Group. It trades about 0.2 of its total potential returns per unit of risk. Lotus Health Group is currently generating about 0.33 per unit of volatility. If you would invest  299.00  in Lotus Health Group on September 15, 2024 and sell it today you would earn a total of  279.00  from holding Lotus Health Group or generate 93.31% return on investment over 90 days.

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

Changchun UP Optotech  vs.  Lotus Health Group

Changchun UP Optotech

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun sustained solid returns over the last few months and may actually be approaching a breakup point.

Lotus Health Group

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lotus Health Group are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lotus Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun and Lotus Health

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

The idea behind Changchun UP Optotech and Lotus Health Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.