Correlation Between Fujian Longzhou and Tianjin Realty

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

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

Diversification Opportunities for Fujian Longzhou and Tianjin Realty

0.54

Correlation Coefficient

Fujian Longzhou  Tianjin Realty

Very weak diversification

The 3 months correlation between Fujian and Tianjin is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Fujian Longzhou Transportation and Tianjin Realty Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Realty Devel and Fujian Longzhou 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 Fujian Longzhou Transportation are associated (or correlated) with Tianjin Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Realty Devel has no effect on the direction of Fujian Longzhou i.e., Fujian Longzhou and Tianjin Realty go up and down completely randomly.

Pair Corralation between Fujian Longzhou and Tianjin Realty

Assuming the 90 days trading horizon Fujian Longzhou Transportation is expected to under-perform the Tianjin Realty. But the stock apears to be less risky and, when comparing its historical volatility, Fujian Longzhou Transportation is 1.08 times less risky than Tianjin Realty. The stock trades about -0.02 of its potential returns per unit of risk. The Tianjin Realty Development is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  216.00  in Tianjin Realty Development on October 9, 2024 and sell it today you would earn a total of  22.00  from holding Tianjin Realty Development or generate 10.19% return on investment over 90 days.

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

Fujian Longzhou Transportation  vs.  Tianjin Realty Development

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.

Tianjin Realty Devel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Realty Development are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Realty sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fujian Longzhou and Tianjin Realty

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

The idea behind Fujian Longzhou Transportation and Tianjin Realty Development 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.