Correlation Between Longxing Chemical and Anhui Liuguo

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

By analyzing existing cross correlation between Longxing Chemical Stock and Anhui Liuguo Chemical, you can compare the effects of market volatilities on Longxing Chemical and Anhui Liuguo 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 Longxing Chemical with a short position of Anhui Liuguo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longxing Chemical and Anhui Liuguo.

Diversification Opportunities for Longxing Chemical and Anhui Liuguo

0.2

Correlation Coefficient

Longxing Chemical  Anhui Liuguo

Modest diversification

The 3 months correlation between Longxing and Anhui is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Longxing Chemical Stock and Anhui Liuguo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Liuguo Chemical and Longxing 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 Longxing Chemical Stock are associated (or correlated) with Anhui Liuguo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Liuguo Chemical has no effect on the direction of Longxing Chemical i.e., Longxing Chemical and Anhui Liuguo go up and down completely randomly.

Pair Corralation between Longxing Chemical and Anhui Liuguo

Assuming the 90 days trading horizon Longxing Chemical Stock is expected to generate 1.23 times more return on investment than Anhui Liuguo. However, Longxing Chemical is 1.23 times more volatile than Anhui Liuguo Chemical. It trades about 0.07 of its potential returns per unit of risk. Anhui Liuguo Chemical is currently generating about -0.01 per unit of risk. If you would invest  568.00  in Longxing Chemical Stock on December 2, 2024 and sell it today you would earn a total of  53.00  from holding Longxing Chemical Stock or generate 9.33% return on investment over 90 days.

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

Longxing Chemical Stock  vs.  Anhui Liuguo Chemical

Longxing Chemical Stock

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Longxing Chemical Stock are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Longxing Chemical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Anhui Liuguo Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Anhui Liuguo Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Anhui Liuguo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Longxing Chemical and Anhui Liuguo

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

The idea behind Longxing Chemical Stock and Anhui Liuguo Chemical 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.