Correlation Between Guangdong Qunxing and Sinosteel Luonai

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

By analyzing existing cross correlation between Guangdong Qunxing Toys and Sinosteel Luonai Materials, you can compare the effects of market volatilities on Guangdong Qunxing and Sinosteel Luonai 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 Guangdong Qunxing with a short position of Sinosteel Luonai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Qunxing and Sinosteel Luonai.

Diversification Opportunities for Guangdong Qunxing and Sinosteel Luonai

0.38

Correlation Coefficient

Guangdong Qunxing  Sinosteel Luonai

Weak diversification

The 3 months correlation between Guangdong and Sinosteel is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Qunxing Toys and Sinosteel Luonai Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinosteel Luonai Mat and Guangdong Qunxing 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 Guangdong Qunxing Toys are associated (or correlated) with Sinosteel Luonai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinosteel Luonai Mat has no effect on the direction of Guangdong Qunxing i.e., Guangdong Qunxing and Sinosteel Luonai go up and down completely randomly.

Pair Corralation between Guangdong Qunxing and Sinosteel Luonai

Assuming the 90 days trading horizon Guangdong Qunxing Toys is expected to generate 4.4 times more return on investment than Sinosteel Luonai. However, Guangdong Qunxing is 4.4 times more volatile than Sinosteel Luonai Materials. It trades about 0.11 of its potential returns per unit of risk. Sinosteel Luonai Materials is currently generating about -0.03 per unit of risk. If you would invest  724.00  in Guangdong Qunxing Toys on December 26, 2024 and sell it today you would earn a total of  216.00  from holding Guangdong Qunxing Toys or generate 29.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Guangdong Qunxing Toys  vs.  Sinosteel Luonai Materials

Guangdong Qunxing Toys

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Qunxing Toys are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Qunxing sustained solid returns over the last few months and may actually be approaching a breakup point.

Sinosteel Luonai Mat

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Guangdong Qunxing and Sinosteel Luonai

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

The idea behind Guangdong Qunxing Toys and Sinosteel Luonai Materials 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.