Correlation Between Suzhou Industrial and Lianhe Chemical

Can any of the company-specific risk be diversified away by investing in both Suzhou Industrial and Lianhe Chemical 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 Suzhou Industrial and Lianhe Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Suzhou Industrial Park and Lianhe Chemical Technology, you can compare the effects of market volatilities on Suzhou Industrial and Lianhe Chemical 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 Suzhou Industrial with a short position of Lianhe Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suzhou Industrial and Lianhe Chemical.

Diversification Opportunities for Suzhou Industrial and Lianhe Chemical

-0.52

Correlation Coefficient

Suzhou Industrial  Lianhe Chemical

Excellent diversification

The 3 months correlation between Suzhou and Lianhe is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Suzhou Industrial Park and Lianhe Chemical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lianhe Chemical Tech and Suzhou Industrial 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 Suzhou Industrial Park are associated (or correlated) with Lianhe Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lianhe Chemical Tech has no effect on the direction of Suzhou Industrial i.e., Suzhou Industrial and Lianhe Chemical go up and down completely randomly.

Pair Corralation between Suzhou Industrial and Lianhe Chemical

Assuming the 90 days trading horizon Suzhou Industrial is expected to generate 7.97 times less return on investment than Lianhe Chemical. In addition to that, Suzhou Industrial is 1.89 times more volatile than Lianhe Chemical Technology. It trades about 0.01 of its total potential returns per unit of risk. Lianhe Chemical Technology is currently generating about 0.18 per unit of volatility. If you would invest  560.00  in Lianhe Chemical Technology on December 25, 2024 and sell it today you would earn a total of  139.00  from holding Lianhe Chemical Technology or generate 24.82% return on investment over 90 days.

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

Suzhou Industrial Park  vs.  Lianhe Chemical Technology

Suzhou Industrial Park

Risk-Adjusted Performance

Very Weak

Over the last 90 days Suzhou Industrial Park has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Suzhou Industrial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lianhe Chemical Tech

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lianhe Chemical Technology are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lianhe Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Suzhou Industrial and Lianhe Chemical

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

The idea behind Suzhou Industrial Park and Lianhe Chemical 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..