Correlation Between Chung Fu and Liton Technology

Can any of the company-specific risk be diversified away by investing in both Chung Fu and Liton Technology 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 Chung Fu and Liton Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chung Fu Tex International and Liton Technology, you can compare the effects of market volatilities on Chung Fu and Liton Technology 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 Chung Fu with a short position of Liton Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Fu and Liton Technology.

Diversification Opportunities for Chung Fu and Liton Technology

0.41

Correlation Coefficient

Chung Fu  Liton Technology

Very weak diversification

The 3 months correlation between Chung and Liton is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Chung Fu Tex International and Liton Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liton Technology and Chung Fu 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 Chung Fu Tex International are associated (or correlated) with Liton Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liton Technology has no effect on the direction of Chung Fu i.e., Chung Fu and Liton Technology go up and down completely randomly.

Pair Corralation between Chung Fu and Liton Technology

Assuming the 90 days trading horizon Chung Fu Tex International is expected to generate 1.06 times more return on investment than Liton Technology. However, Chung Fu is 1.06 times more volatile than Liton Technology. It trades about 0.14 of its potential returns per unit of risk. Liton Technology is currently generating about 0.08 per unit of risk. If you would invest  3,285  in Chung Fu Tex International on December 24, 2024 and sell it today you would earn a total of  895.00  from holding Chung Fu Tex International or generate 27.25% return on investment over 90 days.

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

Chung Fu Tex International  vs.  Liton Technology

Chung Fu Tex

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chung Fu Tex International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chung Fu showed solid returns over the last few months and may actually be approaching a breakup point.

Liton Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liton Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Liton Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chung Fu and Liton Technology

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

The idea behind Chung Fu Tex International and Liton Technology 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .