Correlation Between Lingsen Precision and China Development

Can any of the company-specific risk be diversified away by investing in both Lingsen Precision and China Development 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 Lingsen Precision and China Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lingsen Precision Industries and China Development Financial, you can compare the effects of market volatilities on Lingsen Precision and China Development 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 Lingsen Precision with a short position of China Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lingsen Precision and China Development.

Diversification Opportunities for Lingsen Precision and China Development

-0.5

Correlation Coefficient

Lingsen Precision  China Development

Very good diversification

The 3 months correlation between Lingsen and China is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Lingsen Precision Industries and China Development Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Development and Lingsen Precision 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 Lingsen Precision Industries are associated (or correlated) with China Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Development has no effect on the direction of Lingsen Precision i.e., Lingsen Precision and China Development go up and down completely randomly.

Pair Corralation between Lingsen Precision and China Development

Assuming the 90 days trading horizon Lingsen Precision Industries is expected to generate 1.25 times more return on investment than China Development. However, Lingsen Precision is 1.25 times more volatile than China Development Financial. It trades about -0.06 of its potential returns per unit of risk. China Development Financial is currently generating about -0.1 per unit of risk. If you would invest  1,810  in Lingsen Precision Industries on October 11, 2024 and sell it today you would lose (45.00) from holding Lingsen Precision Industries or give up 2.49% of portfolio value over 90 days.

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

Lingsen Precision Industries  vs.  China Development Financial

Lingsen Precision

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Development

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Development is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lingsen Precision and China Development

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

The idea behind Lingsen Precision Industries and China Development Financial 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.