Correlation Between Lingyuan Iron and Wanhua Chemical

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

Diversification Opportunities for Lingyuan Iron and Wanhua Chemical

0.3

Correlation Coefficient

Lingyuan Iron  Wanhua Chemical

Weak diversification

The 3 months correlation between Lingyuan and Wanhua is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lingyuan Iron Steel and Wanhua Chemical Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wanhua Chemical Group 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 Wanhua Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wanhua Chemical Group has no effect on the direction of Lingyuan Iron i.e., Lingyuan Iron and Wanhua Chemical go up and down completely randomly.

Pair Corralation between Lingyuan Iron and Wanhua Chemical

Assuming the 90 days trading horizon Lingyuan Iron Steel is expected to generate 1.42 times more return on investment than Wanhua Chemical. However, Lingyuan Iron is 1.42 times more volatile than Wanhua Chemical Group. It trades about 0.2 of its potential returns per unit of risk. Wanhua Chemical Group is currently generating about 0.05 per unit of risk. If you would invest  147.00  in Lingyuan Iron Steel on September 13, 2024 and sell it today you would earn a total of  69.00  from holding Lingyuan Iron Steel or generate 46.94% return on investment over 90 days.

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

Lingyuan Iron Steel  vs.  Wanhua Chemical Group

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.

Wanhua Chemical Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wanhua Chemical Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wanhua Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lingyuan Iron and Wanhua Chemical

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

The idea behind Lingyuan Iron Steel and Wanhua Chemical Group 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.