Correlation Between Shanxi Lanhua and Sportsoul

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

By analyzing existing cross correlation between Shanxi Lanhua Sci Tech and Sportsoul Co Ltd, you can compare the effects of market volatilities on Shanxi Lanhua and Sportsoul 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 Shanxi Lanhua with a short position of Sportsoul. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanxi Lanhua and Sportsoul.

Diversification Opportunities for Shanxi Lanhua and Sportsoul

0.24

Correlation Coefficient

Shanxi Lanhua  Sportsoul

Modest diversification

The 3 months correlation between Shanxi and Sportsoul is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Shanxi Lanhua Sci Tech and Sportsoul Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sportsoul and Shanxi Lanhua 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 Shanxi Lanhua Sci Tech are associated (or correlated) with Sportsoul. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sportsoul has no effect on the direction of Shanxi Lanhua i.e., Shanxi Lanhua and Sportsoul go up and down completely randomly.

Pair Corralation between Shanxi Lanhua and Sportsoul

Assuming the 90 days trading horizon Shanxi Lanhua Sci Tech is expected to under-perform the Sportsoul. But the stock apears to be less risky and, when comparing its historical volatility, Shanxi Lanhua Sci Tech is 1.95 times less risky than Sportsoul. The stock trades about -0.16 of its potential returns per unit of risk. The Sportsoul Co Ltd is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,177  in Sportsoul Co Ltd on December 28, 2024 and sell it today you would earn a total of  44.00  from holding Sportsoul Co Ltd or generate 3.74% return on investment over 90 days.

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

Shanxi Lanhua Sci Tech  vs.  Sportsoul Co Ltd

Shanxi Lanhua Sci

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanxi Lanhua Sci Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sportsoul

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sportsoul Co Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sportsoul is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanxi Lanhua and Sportsoul

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

The idea behind Shanxi Lanhua Sci Tech and Sportsoul Co Ltd 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..