Correlation Between Central Reinsurance and Lingsen Precision

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

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

Diversification Opportunities for Central Reinsurance and Lingsen Precision

0.65

Correlation Coefficient

Central Reinsurance  Lingsen Precision

Poor diversification

The 3 months correlation between Central and Lingsen is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Central Reinsurance Corp and Lingsen Precision Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingsen Precision and Central Reinsurance 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 Central Reinsurance Corp are associated (or correlated) with Lingsen Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingsen Precision has no effect on the direction of Central Reinsurance i.e., Central Reinsurance and Lingsen Precision go up and down completely randomly.

Pair Corralation between Central Reinsurance and Lingsen Precision

Assuming the 90 days trading horizon Central Reinsurance is expected to generate 1.08 times less return on investment than Lingsen Precision. But when comparing it to its historical volatility, Central Reinsurance Corp is 1.96 times less risky than Lingsen Precision. It trades about 0.07 of its potential returns per unit of risk. Lingsen Precision Industries is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,305  in Lingsen Precision Industries on October 11, 2024 and sell it today you would earn a total of  460.00  from holding Lingsen Precision Industries or generate 35.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Central Reinsurance Corp  vs.  Lingsen Precision Industries

Central Reinsurance Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Central Reinsurance Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Central Reinsurance is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with Central Reinsurance and Lingsen Precision

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

The idea behind Central Reinsurance Corp and Lingsen Precision Industries 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.