Correlation Between China Development and Lin Horn

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

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

Diversification Opportunities for China Development and Lin Horn

-0.16

Correlation Coefficient

China Development  Lin Horn

Good diversification

The 3 months correlation between China and Lin is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Lin Horn Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lin Horn Technology and China Development 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 China Development Financial are associated (or correlated) with Lin Horn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lin Horn Technology has no effect on the direction of China Development i.e., China Development and Lin Horn go up and down completely randomly.

Pair Corralation between China Development and Lin Horn

Assuming the 90 days trading horizon China Development Financial is expected to under-perform the Lin Horn. But the stock apears to be less risky and, when comparing its historical volatility, China Development Financial is 1.9 times less risky than Lin Horn. The stock trades about -0.05 of its potential returns per unit of risk. The Lin Horn Technology is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,390  in Lin Horn Technology on October 27, 2024 and sell it today you would earn a total of  45.00  from holding Lin Horn Technology or generate 1.88% return on investment over 90 days.

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

China Development Financial  vs.  Lin Horn Technology

China Development

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 2 (%) 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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lin Horn Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lin Horn Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China Development and Lin Horn

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

The idea behind China Development Financial and Lin Horn Technology 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.