Correlation Between Lingyuan Iron and Bengang Steel

Can any of the company-specific risk be diversified away by investing in both Lingyuan Iron and Bengang Steel 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 Bengang Steel 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 Bengang Steel Plates, you can compare the effects of market volatilities on Lingyuan Iron and Bengang Steel 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 Bengang Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lingyuan Iron and Bengang Steel.

Diversification Opportunities for Lingyuan Iron and Bengang Steel

0.49

Correlation Coefficient

Lingyuan Iron  Bengang Steel

Very weak diversification

The 3 months correlation between Lingyuan and Bengang is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lingyuan Iron Steel and Bengang Steel Plates in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bengang Steel Plates 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 Bengang Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bengang Steel Plates has no effect on the direction of Lingyuan Iron i.e., Lingyuan Iron and Bengang Steel go up and down completely randomly.

Pair Corralation between Lingyuan Iron and Bengang Steel

Assuming the 90 days trading horizon Lingyuan Iron Steel is expected to under-perform the Bengang Steel. But the stock apears to be less risky and, when comparing its historical volatility, Lingyuan Iron Steel is 1.46 times less risky than Bengang Steel. The stock trades about -0.07 of its potential returns per unit of risk. The Bengang Steel Plates is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  356.00  in Bengang Steel Plates on December 3, 2024 and sell it today you would earn a total of  47.00  from holding Bengang Steel Plates or generate 13.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Lingyuan Iron Steel  vs.  Bengang Steel Plates

Lingyuan Iron Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lingyuan Iron Steel 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.

Bengang Steel Plates

Risk-Adjusted Performance

Modest

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

Pair Trading with Lingyuan Iron and Bengang Steel

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

The idea behind Lingyuan Iron Steel and Bengang Steel Plates 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.