Correlation Between Lingyuan Iron and Kunshan Guoli

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

Diversification Opportunities for Lingyuan Iron and Kunshan Guoli

0.89

Correlation Coefficient

Lingyuan Iron  Kunshan Guoli

Very poor diversification

The 3 months correlation between Lingyuan and Kunshan is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Lingyuan Iron Steel and Kunshan Guoli Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunshan Guoli Electronic 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 Kunshan Guoli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunshan Guoli Electronic has no effect on the direction of Lingyuan Iron i.e., Lingyuan Iron and Kunshan Guoli go up and down completely randomly.

Pair Corralation between Lingyuan Iron and Kunshan Guoli

Assuming the 90 days trading horizon Lingyuan Iron Steel is expected to generate 0.79 times more return on investment than Kunshan Guoli. However, Lingyuan Iron Steel is 1.26 times less risky than Kunshan Guoli. It trades about 0.22 of its potential returns per unit of risk. Kunshan Guoli Electronic is currently generating about 0.16 per unit of risk. If you would invest  140.00  in Lingyuan Iron Steel on September 4, 2024 and sell it today you would earn a total of  70.00  from holding Lingyuan Iron Steel or generate 50.0% return on investment over 90 days.

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

Lingyuan Iron Steel  vs.  Kunshan Guoli Electronic

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.

Kunshan Guoli Electronic

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kunshan Guoli Electronic are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kunshan Guoli sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lingyuan Iron and Kunshan Guoli

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

The idea behind Lingyuan Iron Steel and Kunshan Guoli Electronic 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 CEOs Directory module to screen CEOs from public companies around the world.