Correlation Between Shandong Longquan and Central Plains

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

By analyzing existing cross correlation between Shandong Longquan Pipeline and Central Plains Environment, you can compare the effects of market volatilities on Shandong Longquan and Central Plains 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 Longquan with a short position of Central Plains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Longquan and Central Plains.

Diversification Opportunities for Shandong Longquan and Central Plains

0.78

Correlation Coefficient

Shandong Longquan  Central Plains

Poor diversification

The 3 months correlation between Shandong and Central is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longquan Pipeline and Central Plains Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Plains Envir and Shandong Longquan 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 Longquan Pipeline are associated (or correlated) with Central Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Plains Envir has no effect on the direction of Shandong Longquan i.e., Shandong Longquan and Central Plains go up and down completely randomly.

Pair Corralation between Shandong Longquan and Central Plains

Assuming the 90 days trading horizon Shandong Longquan Pipeline is expected to under-perform the Central Plains. In addition to that, Shandong Longquan is 1.57 times more volatile than Central Plains Environment. It trades about -0.3 of its total potential returns per unit of risk. Central Plains Environment is currently generating about -0.18 per unit of volatility. If you would invest  879.00  in Central Plains Environment on October 6, 2024 and sell it today you would lose (46.00) from holding Central Plains Environment or give up 5.23% of portfolio value over 90 days.

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

Shandong Longquan Pipeline  vs.  Central Plains Environment

Shandong Longquan

Risk-Adjusted Performance

0 of 100

Very Weak

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

Central Plains Envir

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shandong Longquan and Central Plains

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

The idea behind Shandong Longquan Pipeline and Central Plains Environment 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.