Correlation Between Zig Sheng and Lan Fa

Can any of the company-specific risk be diversified away by investing in both Zig Sheng and Lan Fa 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 Zig Sheng and Lan Fa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zig Sheng Industrial and Lan Fa Textile, you can compare the effects of market volatilities on Zig Sheng and Lan Fa 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 Zig Sheng with a short position of Lan Fa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zig Sheng and Lan Fa.

Diversification Opportunities for Zig Sheng and Lan Fa

0.76

Correlation Coefficient

Zig Sheng  Lan Fa

Poor diversification

The 3 months correlation between Zig and Lan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Zig Sheng Industrial and Lan Fa Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lan Fa Textile and Zig Sheng 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 Zig Sheng Industrial are associated (or correlated) with Lan Fa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lan Fa Textile has no effect on the direction of Zig Sheng i.e., Zig Sheng and Lan Fa go up and down completely randomly.

Pair Corralation between Zig Sheng and Lan Fa

Assuming the 90 days trading horizon Zig Sheng Industrial is expected to under-perform the Lan Fa. But the stock apears to be less risky and, when comparing its historical volatility, Zig Sheng Industrial is 2.21 times less risky than Lan Fa. The stock trades about -0.02 of its potential returns per unit of risk. The Lan Fa Textile is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  955.00  in Lan Fa Textile on December 27, 2024 and sell it today you would earn a total of  295.00  from holding Lan Fa Textile or generate 30.89% return on investment over 90 days.

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

Zig Sheng Industrial  vs.  Lan Fa Textile

Zig Sheng Industrial

Risk-Adjusted Performance

Very Weak

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

Lan Fa Textile

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lan Fa Textile are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lan Fa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zig Sheng and Lan Fa

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

The idea behind Zig Sheng Industrial and Lan Fa Textile 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.