Correlation Between Li Peng and San Fu

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

By analyzing existing cross correlation between Li Peng Enterprise and San Fu Chemical, you can compare the effects of market volatilities on Li Peng and San Fu 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 Li Peng with a short position of San Fu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Peng and San Fu.

Diversification Opportunities for Li Peng and San Fu

0.37

Correlation Coefficient

Li Peng  San Fu

Weak diversification

The 3 months correlation between 1447 and San is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Li Peng Enterprise and San Fu Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on San Fu Chemical and Li Peng 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 Li Peng Enterprise are associated (or correlated) with San Fu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of San Fu Chemical has no effect on the direction of Li Peng i.e., Li Peng and San Fu go up and down completely randomly.

Pair Corralation between Li Peng and San Fu

Assuming the 90 days trading horizon Li Peng Enterprise is expected to generate 0.67 times more return on investment than San Fu. However, Li Peng Enterprise is 1.49 times less risky than San Fu. It trades about 0.0 of its potential returns per unit of risk. San Fu Chemical is currently generating about -0.11 per unit of risk. If you would invest  720.00  in Li Peng Enterprise on December 26, 2024 and sell it today you would earn a total of  0.00  from holding Li Peng Enterprise or generate 0.0% return on investment over 90 days.

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

Li Peng Enterprise  vs.  San Fu Chemical

Li Peng Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Li Peng Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Li Peng is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

San Fu Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days San Fu Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Li Peng and San Fu

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

The idea behind Li Peng Enterprise and San Fu Chemical 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.