Correlation Between Shandong Longquan and Lotus Health

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

Diversification Opportunities for Shandong Longquan and Lotus Health

0.4

Correlation Coefficient

Shandong Longquan  Lotus Health

Very weak diversification

The 3 months correlation between Shandong and Lotus is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longquan Pipeline and Lotus Health Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Health Group 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 Lotus Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Health Group has no effect on the direction of Shandong Longquan i.e., Shandong Longquan and Lotus Health go up and down completely randomly.

Pair Corralation between Shandong Longquan and Lotus Health

Assuming the 90 days trading horizon Shandong Longquan is expected to generate 3.1 times less return on investment than Lotus Health. But when comparing it to its historical volatility, Shandong Longquan Pipeline is 1.98 times less risky than Lotus Health. It trades about 0.04 of its potential returns per unit of risk. Lotus Health Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  465.00  in Lotus Health Group on October 27, 2024 and sell it today you would earn a total of  59.00  from holding Lotus Health Group or generate 12.69% return on investment over 90 days.

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

Shandong Longquan Pipeline  vs.  Lotus Health Group

Shandong Longquan

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Lotus Health Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lotus Health Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lotus Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Longquan and Lotus Health

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

The idea behind Shandong Longquan Pipeline and Lotus Health Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.