Correlation Between Guangzhou Hongli and Linewell Software

Can any of the company-specific risk be diversified away by investing in both Guangzhou Hongli and Linewell Software 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 Guangzhou Hongli and Linewell Software into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangzhou Hongli Opto and Linewell Software Co, you can compare the effects of market volatilities on Guangzhou Hongli and Linewell Software 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 Guangzhou Hongli with a short position of Linewell Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Hongli and Linewell Software.

Diversification Opportunities for Guangzhou Hongli and Linewell Software

0.82

Correlation Coefficient

Guangzhou Hongli  Linewell Software

Very poor diversification

The 3 months correlation between Guangzhou and Linewell is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Hongli Opto and Linewell Software Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linewell Software and Guangzhou Hongli 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 Guangzhou Hongli Opto are associated (or correlated) with Linewell Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linewell Software has no effect on the direction of Guangzhou Hongli i.e., Guangzhou Hongli and Linewell Software go up and down completely randomly.

Pair Corralation between Guangzhou Hongli and Linewell Software

Assuming the 90 days trading horizon Guangzhou Hongli Opto is expected to under-perform the Linewell Software. In addition to that, Guangzhou Hongli is 1.42 times more volatile than Linewell Software Co. It trades about -0.19 of its total potential returns per unit of risk. Linewell Software Co is currently generating about -0.08 per unit of volatility. If you would invest  1,093  in Linewell Software Co on October 22, 2024 and sell it today you would lose (38.00) from holding Linewell Software Co or give up 3.48% of portfolio value over 90 days.

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

Guangzhou Hongli Opto  vs.  Linewell Software Co

Guangzhou Hongli Opto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Hongli Opto 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.

Linewell Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangzhou Hongli and Linewell Software

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

The idea behind Guangzhou Hongli Opto and Linewell Software Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.