Correlation Between Wei Chuan and Lingsen Precision

Can any of the company-specific risk be diversified away by investing in both Wei Chuan and Lingsen Precision 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 Wei Chuan and Lingsen Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wei Chuan Foods and Lingsen Precision Industries, you can compare the effects of market volatilities on Wei Chuan and Lingsen Precision 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 Wei Chuan with a short position of Lingsen Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wei Chuan and Lingsen Precision.

Diversification Opportunities for Wei Chuan and Lingsen Precision

0.6

Correlation Coefficient

Wei Chuan  Lingsen Precision

Poor diversification

The 3 months correlation between Wei and Lingsen is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Wei Chuan Foods and Lingsen Precision Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingsen Precision and Wei Chuan 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 Wei Chuan Foods are associated (or correlated) with Lingsen Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingsen Precision has no effect on the direction of Wei Chuan i.e., Wei Chuan and Lingsen Precision go up and down completely randomly.

Pair Corralation between Wei Chuan and Lingsen Precision

Assuming the 90 days trading horizon Wei Chuan is expected to generate 1.52 times less return on investment than Lingsen Precision. But when comparing it to its historical volatility, Wei Chuan Foods is 3.27 times less risky than Lingsen Precision. It trades about 0.05 of its potential returns per unit of risk. Lingsen Precision Industries is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,715  in Lingsen Precision Industries on December 20, 2024 and sell it today you would earn a total of  20.00  from holding Lingsen Precision Industries or generate 1.17% return on investment over 90 days.

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

Wei Chuan Foods  vs.  Lingsen Precision Industries

Wei Chuan Foods

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wei Chuan Foods are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Wei Chuan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lingsen Precision

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lingsen Precision Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lingsen Precision is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Wei Chuan and Lingsen Precision

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

The idea behind Wei Chuan Foods and Lingsen Precision Industries 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.