Correlation Between Lan Fa and Yi Jinn

Can any of the company-specific risk be diversified away by investing in both Lan Fa and Yi Jinn 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 Yi Jinn 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 Yi Jinn Industrial, you can compare the effects of market volatilities on Lan Fa and Yi Jinn 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 Yi Jinn. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lan Fa and Yi Jinn.

Diversification Opportunities for Lan Fa and Yi Jinn

0.35

Correlation Coefficient

Lan Fa  Yi Jinn

Weak diversification

The 3 months correlation between Lan and 1457 is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Lan Fa Textile and Yi Jinn Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yi Jinn 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 Yi Jinn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yi Jinn Industrial has no effect on the direction of Lan Fa i.e., Lan Fa and Yi Jinn go up and down completely randomly.

Pair Corralation between Lan Fa and Yi Jinn

Assuming the 90 days trading horizon Lan Fa Textile is expected to under-perform the Yi Jinn. In addition to that, Lan Fa is 1.1 times more volatile than Yi Jinn Industrial. It trades about -0.08 of its total potential returns per unit of risk. Yi Jinn Industrial is currently generating about -0.07 per unit of volatility. If you would invest  2,040  in Yi Jinn Industrial on September 16, 2024 and sell it today you would lose (55.00) from holding Yi Jinn Industrial or give up 2.7% of portfolio value over 90 days.

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

Lan Fa Textile  vs.  Yi Jinn Industrial

Lan Fa Textile

Risk-Adjusted Performance

0 of 100

Very Weak

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

Yi Jinn Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yi Jinn Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yi Jinn 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 Yi Jinn

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

The idea behind Lan Fa Textile and Yi Jinn 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.