Correlation Between Shandong Longda and Bank of Communications

Can any of the company-specific risk be diversified away by investing in both Shandong Longda and Bank of Communications 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 Longda and Bank of Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Longda Meat and Bank of Communications, you can compare the effects of market volatilities on Shandong Longda and Bank of Communications 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 Longda with a short position of Bank of Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Longda and Bank of Communications.

Diversification Opportunities for Shandong Longda and Bank of Communications

0.58

Correlation Coefficient

Shandong Longda  Bank of Communications

Very weak diversification

The 3 months correlation between Shandong and Bank is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longda Meat and Bank of Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Communications and Shandong Longda 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 Longda Meat are associated (or correlated) with Bank of Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Communications has no effect on the direction of Shandong Longda i.e., Shandong Longda and Bank of Communications go up and down completely randomly.

Pair Corralation between Shandong Longda and Bank of Communications

Assuming the 90 days trading horizon Shandong Longda Meat is expected to under-perform the Bank of Communications. In addition to that, Shandong Longda is 2.09 times more volatile than Bank of Communications. It trades about -0.15 of its total potential returns per unit of risk. Bank of Communications is currently generating about -0.22 per unit of volatility. If you would invest  768.00  in Bank of Communications on October 22, 2024 and sell it today you would lose (40.00) from holding Bank of Communications or give up 5.21% of portfolio value over 90 days.

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

Shandong Longda Meat  vs.  Bank of Communications

Shandong Longda Meat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Longda Meat has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong Longda is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bank of Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bank of Communications 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 Longda and Bank of Communications

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

The idea behind Shandong Longda Meat and Bank of Communications 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.