Correlation Between Lepu Medical and Gome Telecom

Can any of the company-specific risk be diversified away by investing in both Lepu Medical and Gome Telecom 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 Lepu Medical and Gome Telecom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lepu Medical Tech and Gome Telecom Equipment, you can compare the effects of market volatilities on Lepu Medical and Gome Telecom 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 Lepu Medical with a short position of Gome Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lepu Medical and Gome Telecom.

Diversification Opportunities for Lepu Medical and Gome Telecom

0.11

Correlation Coefficient

Lepu Medical  Gome Telecom

Average diversification

The 3 months correlation between Lepu and Gome is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Lepu Medical Tech and Gome Telecom Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gome Telecom Equipment and Lepu Medical 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 Lepu Medical Tech are associated (or correlated) with Gome Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gome Telecom Equipment has no effect on the direction of Lepu Medical i.e., Lepu Medical and Gome Telecom go up and down completely randomly.

Pair Corralation between Lepu Medical and Gome Telecom

Assuming the 90 days trading horizon Lepu Medical Tech is expected to under-perform the Gome Telecom. But the stock apears to be less risky and, when comparing its historical volatility, Lepu Medical Tech is 1.12 times less risky than Gome Telecom. The stock trades about 0.0 of its potential returns per unit of risk. The Gome Telecom Equipment is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  106.00  in Gome Telecom Equipment on September 20, 2024 and sell it today you would earn a total of  53.00  from holding Gome Telecom Equipment or generate 50.0% return on investment over 90 days.

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

Lepu Medical Tech  vs.  Gome Telecom Equipment

Lepu Medical Tech

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lepu Medical Tech are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lepu Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Gome Telecom Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gome Telecom Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Lepu Medical and Gome Telecom

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

The idea behind Lepu Medical Tech and Gome Telecom Equipment 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.