Correlation Between Longshine Technology and Caihong Display

Can any of the company-specific risk be diversified away by investing in both Longshine Technology and Caihong Display 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 Longshine Technology and Caihong Display into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Longshine Technology Co and Caihong Display Devices, you can compare the effects of market volatilities on Longshine Technology and Caihong Display 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 Longshine Technology with a short position of Caihong Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longshine Technology and Caihong Display.

Diversification Opportunities for Longshine Technology and Caihong Display

0.31

Correlation Coefficient

Longshine Technology  Caihong Display

Weak diversification

The 3 months correlation between Longshine and Caihong is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Longshine Technology Co and Caihong Display Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caihong Display Devices and Longshine Technology 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 Longshine Technology Co are associated (or correlated) with Caihong Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caihong Display Devices has no effect on the direction of Longshine Technology i.e., Longshine Technology and Caihong Display go up and down completely randomly.

Pair Corralation between Longshine Technology and Caihong Display

Assuming the 90 days trading horizon Longshine Technology Co is expected to generate 1.5 times more return on investment than Caihong Display. However, Longshine Technology is 1.5 times more volatile than Caihong Display Devices. It trades about 0.07 of its potential returns per unit of risk. Caihong Display Devices is currently generating about 0.06 per unit of risk. If you would invest  833.00  in Longshine Technology Co on October 7, 2024 and sell it today you would earn a total of  255.00  from holding Longshine Technology Co or generate 30.61% return on investment over 90 days.

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

Longshine Technology Co  vs.  Caihong Display Devices

Longshine Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Longshine Technology Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Caihong Display Devices

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Longshine Technology and Caihong Display

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

The idea behind Longshine Technology Co and Caihong Display Devices 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.