Correlation Between Lan Fa and Zig Sheng

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

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

Diversification Opportunities for Lan Fa and Zig Sheng

0.76

Correlation Coefficient

Lan Fa  Zig Sheng

Poor diversification

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

Pair Corralation between Lan Fa and Zig Sheng

Assuming the 90 days trading horizon Lan Fa Textile is expected to generate 2.21 times more return on investment than Zig Sheng. However, Lan Fa is 2.21 times more volatile than Zig Sheng Industrial. It trades about 0.17 of its potential returns per unit of risk. Zig Sheng Industrial is currently generating about -0.02 per unit of risk. 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

Lan Fa Textile  vs.  Zig Sheng Industrial

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.

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.

Pair Trading with Lan Fa and Zig Sheng

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

The idea behind Lan Fa Textile and Zig Sheng Industrial 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 Global Correlations module to find global opportunities by holding instruments from different markets.