Correlation Between Long Bon and ZongTai Real

Can any of the company-specific risk be diversified away by investing in both Long Bon and ZongTai Real 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 Long Bon and ZongTai Real into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Long Bon International and ZongTai Real Estate, you can compare the effects of market volatilities on Long Bon and ZongTai Real 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 Long Bon with a short position of ZongTai Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Bon and ZongTai Real.

Diversification Opportunities for Long Bon and ZongTai Real

-0.28

Correlation Coefficient

Long Bon  ZongTai Real

Very good diversification

The 3 months correlation between Long and ZongTai is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Long Bon International and ZongTai Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZongTai Real Estate and Long Bon 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 Long Bon International are associated (or correlated) with ZongTai Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZongTai Real Estate has no effect on the direction of Long Bon i.e., Long Bon and ZongTai Real go up and down completely randomly.

Pair Corralation between Long Bon and ZongTai Real

Assuming the 90 days trading horizon Long Bon International is expected to under-perform the ZongTai Real. But the stock apears to be less risky and, when comparing its historical volatility, Long Bon International is 1.51 times less risky than ZongTai Real. The stock trades about -0.34 of its potential returns per unit of risk. The ZongTai Real Estate is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  3,435  in ZongTai Real Estate on September 23, 2024 and sell it today you would lose (250.00) from holding ZongTai Real Estate or give up 7.28% of portfolio value over 90 days.

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

Long Bon International  vs.  ZongTai Real Estate

Long Bon International

Risk-Adjusted Performance

0 of 100

Very Weak

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

ZongTai Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ZongTai Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ZongTai Real 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 Long Bon and ZongTai Real

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

The idea behind Long Bon International and ZongTai Real Estate 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.