Correlation Between Elite Color and Shanxi Lanhua

Can any of the company-specific risk be diversified away by investing in both Elite Color and Shanxi Lanhua 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 Elite Color and Shanxi Lanhua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elite Color Environmental and Shanxi Lanhua Sci Tech, you can compare the effects of market volatilities on Elite Color and Shanxi Lanhua 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 Elite Color with a short position of Shanxi Lanhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Color and Shanxi Lanhua.

Diversification Opportunities for Elite Color and Shanxi Lanhua

0.17

Correlation Coefficient

Elite Color  Shanxi Lanhua

Average diversification

The 3 months correlation between Elite and Shanxi is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Elite Color Environmental and Shanxi Lanhua Sci Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanxi Lanhua Sci and Elite Color 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 Elite Color Environmental are associated (or correlated) with Shanxi Lanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanxi Lanhua Sci has no effect on the direction of Elite Color i.e., Elite Color and Shanxi Lanhua go up and down completely randomly.

Pair Corralation between Elite Color and Shanxi Lanhua

Assuming the 90 days trading horizon Elite Color Environmental is expected to under-perform the Shanxi Lanhua. In addition to that, Elite Color is 1.32 times more volatile than Shanxi Lanhua Sci Tech. It trades about -0.04 of its total potential returns per unit of risk. Shanxi Lanhua Sci Tech is currently generating about 0.01 per unit of volatility. If you would invest  863.00  in Shanxi Lanhua Sci Tech on September 28, 2024 and sell it today you would lose (1.00) from holding Shanxi Lanhua Sci Tech or give up 0.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Elite Color Environmental  vs.  Shanxi Lanhua Sci Tech

Elite Color Environmental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Color Environmental are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Elite Color is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanxi Lanhua Sci

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanxi Lanhua Sci Tech 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Elite Color and Shanxi Lanhua

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

The idea behind Elite Color Environmental and Shanxi Lanhua Sci Tech 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.