Correlation Between Shandong Hongchuang and Jiangxi Lianchuang

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

By analyzing existing cross correlation between Shandong Hongchuang Aluminum and Jiangxi Lianchuang Opto electronic, you can compare the effects of market volatilities on Shandong Hongchuang and Jiangxi Lianchuang 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 Shandong Hongchuang with a short position of Jiangxi Lianchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Hongchuang and Jiangxi Lianchuang.

Diversification Opportunities for Shandong Hongchuang and Jiangxi Lianchuang

0.31

Correlation Coefficient

Shandong Hongchuang  Jiangxi Lianchuang

Weak diversification

The 3 months correlation between Shandong and Jiangxi is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hongchuang Aluminum and Jiangxi Lianchuang Opto electr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangxi Lianchuang Opto and Shandong Hongchuang 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 Shandong Hongchuang Aluminum are associated (or correlated) with Jiangxi Lianchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangxi Lianchuang Opto has no effect on the direction of Shandong Hongchuang i.e., Shandong Hongchuang and Jiangxi Lianchuang go up and down completely randomly.

Pair Corralation between Shandong Hongchuang and Jiangxi Lianchuang

Assuming the 90 days trading horizon Shandong Hongchuang Aluminum is expected to generate 1.36 times more return on investment than Jiangxi Lianchuang. However, Shandong Hongchuang is 1.36 times more volatile than Jiangxi Lianchuang Opto electronic. It trades about 0.26 of its potential returns per unit of risk. Jiangxi Lianchuang Opto electronic is currently generating about -0.13 per unit of risk. If you would invest  785.00  in Shandong Hongchuang Aluminum on October 14, 2024 and sell it today you would earn a total of  182.00  from holding Shandong Hongchuang Aluminum or generate 23.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Shandong Hongchuang Aluminum  vs.  Jiangxi Lianchuang Opto electr

Shandong Hongchuang

Risk-Adjusted Performance

16 of 100

Solid

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

Jiangxi Lianchuang Opto

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Lianchuang Opto electronic are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Lianchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Hongchuang and Jiangxi Lianchuang

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

The idea behind Shandong Hongchuang Aluminum and Jiangxi Lianchuang Opto electronic 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.