Correlation Between Shanxi Lanhua and Grandblue Environment

Can any of the company-specific risk be diversified away by investing in both Shanxi Lanhua and Grandblue Environment 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 Grandblue Environment 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 Grandblue Environment Co, you can compare the effects of market volatilities on Shanxi Lanhua and Grandblue Environment 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 Grandblue Environment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanxi Lanhua and Grandblue Environment.

Diversification Opportunities for Shanxi Lanhua and Grandblue Environment

0.65

Correlation Coefficient

Shanxi Lanhua  Grandblue Environment

Poor diversification

The 3 months correlation between Shanxi and Grandblue is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Shanxi Lanhua Sci Tech and Grandblue Environment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grandblue Environment 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 Grandblue Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grandblue Environment has no effect on the direction of Shanxi Lanhua i.e., Shanxi Lanhua and Grandblue Environment go up and down completely randomly.

Pair Corralation between Shanxi Lanhua and Grandblue Environment

Assuming the 90 days trading horizon Shanxi Lanhua Sci Tech is expected to generate 1.52 times more return on investment than Grandblue Environment. However, Shanxi Lanhua is 1.52 times more volatile than Grandblue Environment Co. It trades about 0.06 of its potential returns per unit of risk. Grandblue Environment Co is currently generating about 0.05 per unit of risk. If you would invest  796.00  in Shanxi Lanhua Sci Tech on September 21, 2024 and sell it today you would earn a total of  97.00  from holding Shanxi Lanhua Sci Tech or generate 12.19% return on investment over 90 days.

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

Shanxi Lanhua Sci Tech  vs.  Grandblue Environment Co

Shanxi Lanhua Sci

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanxi Lanhua Sci Tech are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanxi Lanhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Grandblue Environment

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grandblue Environment Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Grandblue Environment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanxi Lanhua and Grandblue Environment

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

The idea behind Shanxi Lanhua Sci Tech and Grandblue Environment Co 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.

Check out your portfolio center.

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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.