Correlation Between Shandong Sanyuan and Liaoning Chengda

Can any of the company-specific risk be diversified away by investing in both Shandong Sanyuan and Liaoning Chengda 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 Shandong Sanyuan and Liaoning Chengda into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Sanyuan Biotechnology and Liaoning Chengda Biotechnology, you can compare the effects of market volatilities on Shandong Sanyuan and Liaoning Chengda 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 Shandong Sanyuan with a short position of Liaoning Chengda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Sanyuan and Liaoning Chengda.

Diversification Opportunities for Shandong Sanyuan and Liaoning Chengda

0.9

Correlation Coefficient

Shandong Sanyuan  Liaoning Chengda

Almost no diversification

The 3 months correlation between Shandong and Liaoning is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Sanyuan Biotechnology and Liaoning Chengda Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Chengda Bio and Shandong Sanyuan 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 Shandong Sanyuan Biotechnology are associated (or correlated) with Liaoning Chengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Chengda Bio has no effect on the direction of Shandong Sanyuan i.e., Shandong Sanyuan and Liaoning Chengda go up and down completely randomly.

Pair Corralation between Shandong Sanyuan and Liaoning Chengda

Assuming the 90 days trading horizon Shandong Sanyuan Biotechnology is expected to generate 1.31 times more return on investment than Liaoning Chengda. However, Shandong Sanyuan is 1.31 times more volatile than Liaoning Chengda Biotechnology. It trades about -0.01 of its potential returns per unit of risk. Liaoning Chengda Biotechnology is currently generating about -0.04 per unit of risk. If you would invest  2,853  in Shandong Sanyuan Biotechnology on October 5, 2024 and sell it today you would lose (373.00) from holding Shandong Sanyuan Biotechnology or give up 13.07% of portfolio value over 90 days.

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

Shandong Sanyuan Biotechnology  vs.  Liaoning Chengda Biotechnology

Shandong Sanyuan Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Sanyuan Biotechnology 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.

Liaoning Chengda Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liaoning Chengda Biotechnology 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.

Pair Trading with Shandong Sanyuan and Liaoning Chengda

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

The idea behind Shandong Sanyuan Biotechnology and Liaoning Chengda Biotechnology 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.