Correlation Between Shandong Longquan and Tianjin Pengling

Can any of the company-specific risk be diversified away by investing in both Shandong Longquan and Tianjin Pengling 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 Tianjin Pengling 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 Tianjin Pengling Rubber, you can compare the effects of market volatilities on Shandong Longquan and Tianjin Pengling 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 Tianjin Pengling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Longquan and Tianjin Pengling.

Diversification Opportunities for Shandong Longquan and Tianjin Pengling

0.87

Correlation Coefficient

Shandong Longquan  Tianjin Pengling

Very poor diversification

The 3 months correlation between Shandong and Tianjin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longquan Pipeline and Tianjin Pengling Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Pengling Rubber 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 Tianjin Pengling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Pengling Rubber has no effect on the direction of Shandong Longquan i.e., Shandong Longquan and Tianjin Pengling go up and down completely randomly.

Pair Corralation between Shandong Longquan and Tianjin Pengling

Assuming the 90 days trading horizon Shandong Longquan is expected to generate 3.12 times less return on investment than Tianjin Pengling. But when comparing it to its historical volatility, Shandong Longquan Pipeline is 1.28 times less risky than Tianjin Pengling. It trades about 0.01 of its potential returns per unit of risk. Tianjin Pengling Rubber is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  360.00  in Tianjin Pengling Rubber on September 28, 2024 and sell it today you would earn a total of  122.00  from holding Tianjin Pengling Rubber or generate 33.89% return on investment over 90 days.

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

Shandong Longquan Pipeline  vs.  Tianjin Pengling Rubber

Shandong Longquan

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Longquan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tianjin Pengling Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tianjin Pengling Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tianjin Pengling 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 Tianjin Pengling

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

The idea behind Shandong Longquan Pipeline and Tianjin Pengling Rubber 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.