Correlation Between Lingyuan Iron and Youyou Foods Co

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

Diversification Opportunities for Lingyuan Iron and Youyou Foods Co

0.64

Correlation Coefficient

Lingyuan Iron  Youyou Foods Co

Poor diversification

The 3 months correlation between Lingyuan and Youyou is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lingyuan Iron Steel and Youyou Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youyou Foods Co 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 Youyou Foods Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youyou Foods Co has no effect on the direction of Lingyuan Iron i.e., Lingyuan Iron and Youyou Foods Co go up and down completely randomly.

Pair Corralation between Lingyuan Iron and Youyou Foods Co

Assuming the 90 days trading horizon Lingyuan Iron Steel is expected to generate 0.99 times more return on investment than Youyou Foods Co. However, Lingyuan Iron Steel is 1.01 times less risky than Youyou Foods Co. It trades about -0.07 of its potential returns per unit of risk. Youyou Foods Co is currently generating about -0.1 per unit of risk. If you would invest  208.00  in Lingyuan Iron Steel on December 3, 2024 and sell it today you would lose (23.00) from holding Lingyuan Iron Steel or give up 11.06% of portfolio value over 90 days.

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

Lingyuan Iron Steel  vs.  Youyou 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 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.

Youyou Foods Co

Risk-Adjusted Performance

Very Weak

Over the last 90 days Youyou Foods Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lingyuan Iron and Youyou Foods Co

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

The idea behind Lingyuan Iron Steel and Youyou 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.