Correlation Between Dirui Industrial and Shanghai Lingyun

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

By analyzing existing cross correlation between Dirui Industrial Co and Shanghai Lingyun Industries, you can compare the effects of market volatilities on Dirui Industrial and Shanghai Lingyun 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 Dirui Industrial with a short position of Shanghai Lingyun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dirui Industrial and Shanghai Lingyun.

Diversification Opportunities for Dirui Industrial and Shanghai Lingyun

0.46

Correlation Coefficient

Dirui Industrial  Shanghai Lingyun

Very weak diversification

The 3 months correlation between Dirui and Shanghai is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dirui Industrial Co and Shanghai Lingyun Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Lingyun Ind and Dirui 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 Dirui Industrial Co are associated (or correlated) with Shanghai Lingyun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Lingyun Ind has no effect on the direction of Dirui Industrial i.e., Dirui Industrial and Shanghai Lingyun go up and down completely randomly.

Pair Corralation between Dirui Industrial and Shanghai Lingyun

Assuming the 90 days trading horizon Dirui Industrial is expected to generate 1.78 times less return on investment than Shanghai Lingyun. But when comparing it to its historical volatility, Dirui Industrial Co is 1.08 times less risky than Shanghai Lingyun. It trades about 0.09 of its potential returns per unit of risk. Shanghai Lingyun Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Shanghai Lingyun Industries on September 5, 2024 and sell it today you would earn a total of  11.00  from holding Shanghai Lingyun Industries or generate 37.93% return on investment over 90 days.

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

Dirui Industrial Co  vs.  Shanghai Lingyun Industries

Dirui Industrial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dirui Industrial Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dirui Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Lingyun Ind

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Lingyun Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Lingyun sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dirui Industrial and Shanghai Lingyun

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

The idea behind Dirui Industrial Co and Shanghai Lingyun Industries 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.