Correlation Between Lingyuan Iron and Anhui Gujing

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

By analyzing existing cross correlation between Lingyuan Iron Steel and Anhui Gujing Distillery, you can compare the effects of market volatilities on Lingyuan Iron and Anhui Gujing 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 Lingyuan Iron with a short position of Anhui Gujing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lingyuan Iron and Anhui Gujing.

Diversification Opportunities for Lingyuan Iron and Anhui Gujing

0.82

Correlation Coefficient

Lingyuan Iron  Anhui Gujing

Very poor diversification

The 3 months correlation between Lingyuan and Anhui is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lingyuan Iron Steel and Anhui Gujing Distillery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Gujing Distillery and Lingyuan Iron 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 Lingyuan Iron Steel are associated (or correlated) with Anhui Gujing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Gujing Distillery has no effect on the direction of Lingyuan Iron i.e., Lingyuan Iron and Anhui Gujing go up and down completely randomly.

Pair Corralation between Lingyuan Iron and Anhui Gujing

Assuming the 90 days trading horizon Lingyuan Iron Steel is expected to generate 0.94 times more return on investment than Anhui Gujing. However, Lingyuan Iron Steel is 1.06 times less risky than Anhui Gujing. It trades about 0.0 of its potential returns per unit of risk. Anhui Gujing Distillery is currently generating about -0.02 per unit of risk. If you would invest  226.00  in Lingyuan Iron Steel on September 4, 2024 and sell it today you would lose (16.00) from holding Lingyuan Iron Steel or give up 7.08% of portfolio value over 90 days.

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

Lingyuan Iron Steel  vs.  Anhui Gujing Distillery

Lingyuan Iron Steel

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lingyuan Iron Steel are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lingyuan Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Anhui Gujing Distillery

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Gujing Distillery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Gujing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lingyuan Iron and Anhui Gujing

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

The idea behind Lingyuan Iron Steel and Anhui Gujing Distillery 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.