Correlation Between Leyard Optoelectronic and China Securities

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

By analyzing existing cross correlation between Leyard Optoelectronic and China Securities 800, you can compare the effects of market volatilities on Leyard Optoelectronic and China Securities 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 Leyard Optoelectronic with a short position of China Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leyard Optoelectronic and China Securities.

Diversification Opportunities for Leyard Optoelectronic and China Securities

0.85

Correlation Coefficient

Leyard Optoelectronic  China Securities

Very poor diversification

The 3 months correlation between Leyard and China is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Leyard Optoelectronic and China Securities 800 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Securities 800 and Leyard Optoelectronic 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 Leyard Optoelectronic are associated (or correlated) with China Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Securities 800 has no effect on the direction of Leyard Optoelectronic i.e., Leyard Optoelectronic and China Securities go up and down completely randomly.

Pair Corralation between Leyard Optoelectronic and China Securities

Assuming the 90 days trading horizon Leyard Optoelectronic is expected to generate 4.32 times more return on investment than China Securities. However, Leyard Optoelectronic is 4.32 times more volatile than China Securities 800. It trades about 0.06 of its potential returns per unit of risk. China Securities 800 is currently generating about 0.0 per unit of risk. If you would invest  696.00  in Leyard Optoelectronic on December 25, 2024 and sell it today you would earn a total of  63.00  from holding Leyard Optoelectronic or generate 9.05% return on investment over 90 days.

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

Leyard Optoelectronic  vs.  China Securities 800

Pair Trading with Leyard Optoelectronic and China Securities

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

The idea behind Leyard Optoelectronic and China Securities 800 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.