Correlation Between Lingyuan Iron and HaiXin Foods

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

Diversification Opportunities for Lingyuan Iron and HaiXin Foods

0.63

Correlation Coefficient

Lingyuan Iron  HaiXin Foods

Poor diversification

The 3 months correlation between Lingyuan and HaiXin is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lingyuan Iron Steel and HaiXin Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HaiXin Foods 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 HaiXin Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HaiXin Foods has no effect on the direction of Lingyuan Iron i.e., Lingyuan Iron and HaiXin Foods go up and down completely randomly.

Pair Corralation between Lingyuan Iron and HaiXin Foods

Assuming the 90 days trading horizon Lingyuan Iron Steel is expected to generate 0.76 times more return on investment than HaiXin Foods. However, Lingyuan Iron Steel is 1.32 times less risky than HaiXin Foods. It trades about 0.0 of its potential returns per unit of risk. HaiXin Foods Co is currently generating about -0.03 per unit of risk. If you would invest  180.00  in Lingyuan Iron Steel on December 28, 2024 and sell it today you would lose (2.00) from holding Lingyuan Iron Steel or give up 1.11% of portfolio value over 90 days.

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

Lingyuan Iron Steel  vs.  HaiXin Foods Co

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 somewhat strong basic indicators, Lingyuan Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HaiXin Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days HaiXin Foods Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HaiXin Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lingyuan Iron and HaiXin Foods

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

The idea behind Lingyuan Iron Steel and HaiXin Foods 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.