Correlation Between Dongjiang Environmental and Fujian Longzhou

Can any of the company-specific risk be diversified away by investing in both Dongjiang Environmental and Fujian Longzhou 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 Dongjiang Environmental and Fujian Longzhou into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongjiang Environmental Co and Fujian Longzhou Transportation, you can compare the effects of market volatilities on Dongjiang Environmental and Fujian Longzhou 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 Dongjiang Environmental with a short position of Fujian Longzhou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongjiang Environmental and Fujian Longzhou.

Diversification Opportunities for Dongjiang Environmental and Fujian Longzhou

0.51

Correlation Coefficient

Dongjiang Environmental  Fujian Longzhou

Very weak diversification

The 3 months correlation between Dongjiang and Fujian is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dongjiang Environmental Co and Fujian Longzhou Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Longzhou Tran and Dongjiang Environmental 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 Dongjiang Environmental Co are associated (or correlated) with Fujian Longzhou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Longzhou Tran has no effect on the direction of Dongjiang Environmental i.e., Dongjiang Environmental and Fujian Longzhou go up and down completely randomly.

Pair Corralation between Dongjiang Environmental and Fujian Longzhou

Assuming the 90 days trading horizon Dongjiang Environmental Co is expected to generate 0.62 times more return on investment than Fujian Longzhou. However, Dongjiang Environmental Co is 1.62 times less risky than Fujian Longzhou. It trades about -0.28 of its potential returns per unit of risk. Fujian Longzhou Transportation is currently generating about -0.21 per unit of risk. If you would invest  455.00  in Dongjiang Environmental Co on October 20, 2024 and sell it today you would lose (56.00) from holding Dongjiang Environmental Co or give up 12.31% of portfolio value over 90 days.

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

Dongjiang Environmental Co  vs.  Fujian Longzhou Transportation

Dongjiang Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongjiang Environmental Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Fujian Longzhou Tran

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fujian Longzhou Transportation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fujian Longzhou may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dongjiang Environmental and Fujian Longzhou

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

The idea behind Dongjiang Environmental Co and Fujian Longzhou Transportation 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.