Correlation Between Shandong Longquan and Northern United

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

Diversification Opportunities for Shandong Longquan and Northern United

ShandongNorthernDiversified AwayShandongNorthernDiversified Away100%
0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Shandong and Northern is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longquan Pipeline and Northern United Publishing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern United Publ 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 Northern United. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern United Publ has no effect on the direction of Shandong Longquan i.e., Shandong Longquan and Northern United go up and down completely randomly.

Pair Corralation between Shandong Longquan and Northern United

Assuming the 90 days trading horizon Shandong Longquan Pipeline is expected to generate 1.03 times more return on investment than Northern United. However, Shandong Longquan is 1.03 times more volatile than Northern United Publishing. It trades about 0.07 of its potential returns per unit of risk. Northern United Publishing is currently generating about 0.04 per unit of risk. If you would invest  414.00  in Shandong Longquan Pipeline on September 30, 2024 and sell it today you would earn a total of  49.00  from holding Shandong Longquan Pipeline or generate 11.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Shandong Longquan Pipeline  vs.  Northern United Publishing

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 1020304050
JavaScript chart by amCharts 3.21.15002671 601999
       Timeline  
Shandong Longquan 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Longquan sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec44.24.44.64.855.25.4
Northern United Publ 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Northern United Publishing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Northern United may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec66.577.588.5

Shandong Longquan and Northern United Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-10.08-7.55-5.02-2.490.04222.675.398.1110.83 0.0200.0250.0300.0350.040
JavaScript chart by amCharts 3.21.15002671 601999
       Returns  

Pair Trading with Shandong Longquan and Northern United

The main advantage of trading using opposite Shandong Longquan and Northern United positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong Longquan position performs unexpectedly, Northern United 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 Northern United will offset losses from the drop in Northern United's long position.
The idea behind Shandong Longquan Pipeline and Northern United Publishing 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.
Check out your portfolio center.
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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