Correlation Between Anhui Tongguan and Loctek Ergonomic

Can any of the company-specific risk be diversified away by investing in both Anhui Tongguan and Loctek Ergonomic 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 Anhui Tongguan and Loctek Ergonomic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Tongguan Copper and Loctek Ergonomic Technology, you can compare the effects of market volatilities on Anhui Tongguan and Loctek Ergonomic 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 Anhui Tongguan with a short position of Loctek Ergonomic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Tongguan and Loctek Ergonomic.

Diversification Opportunities for Anhui Tongguan and Loctek Ergonomic

0.89

Correlation Coefficient

Anhui Tongguan  Loctek Ergonomic

Very poor diversification

The 3 months correlation between Anhui and Loctek is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Tongguan Copper and Loctek Ergonomic Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loctek Ergonomic Tec and Anhui Tongguan 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 Anhui Tongguan Copper are associated (or correlated) with Loctek Ergonomic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loctek Ergonomic Tec has no effect on the direction of Anhui Tongguan i.e., Anhui Tongguan and Loctek Ergonomic go up and down completely randomly.

Pair Corralation between Anhui Tongguan and Loctek Ergonomic

Assuming the 90 days trading horizon Anhui Tongguan Copper is expected to under-perform the Loctek Ergonomic. But the stock apears to be less risky and, when comparing its historical volatility, Anhui Tongguan Copper is 1.31 times less risky than Loctek Ergonomic. The stock trades about -0.08 of its potential returns per unit of risk. The Loctek Ergonomic Technology is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,669  in Loctek Ergonomic Technology on September 22, 2024 and sell it today you would lose (29.00) from holding Loctek Ergonomic Technology or give up 1.74% of portfolio value over 90 days.

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

Anhui Tongguan Copper  vs.  Loctek Ergonomic Technology

Anhui Tongguan Copper

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Tongguan Copper are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Tongguan sustained solid returns over the last few months and may actually be approaching a breakup point.

Loctek Ergonomic Tec

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loctek Ergonomic Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Loctek Ergonomic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anhui Tongguan and Loctek Ergonomic

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

The idea behind Anhui Tongguan Copper and Loctek Ergonomic Technology 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.