Correlation Between Liuzhou Chemical and Beijing Sanyuan

Can any of the company-specific risk be diversified away by investing in both Liuzhou Chemical and Beijing Sanyuan 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 Liuzhou Chemical and Beijing Sanyuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liuzhou Chemical Industry and Beijing Sanyuan Foods, you can compare the effects of market volatilities on Liuzhou Chemical and Beijing Sanyuan 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 Liuzhou Chemical with a short position of Beijing Sanyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liuzhou Chemical and Beijing Sanyuan.

Diversification Opportunities for Liuzhou Chemical and Beijing Sanyuan

0.9

Correlation Coefficient

Liuzhou Chemical  Beijing Sanyuan

Almost no diversification

The 3 months correlation between Liuzhou and Beijing is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Liuzhou Chemical Industry and Beijing Sanyuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Sanyuan Foods and Liuzhou Chemical 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 Liuzhou Chemical Industry are associated (or correlated) with Beijing Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Sanyuan Foods has no effect on the direction of Liuzhou Chemical i.e., Liuzhou Chemical and Beijing Sanyuan go up and down completely randomly.

Pair Corralation between Liuzhou Chemical and Beijing Sanyuan

Assuming the 90 days trading horizon Liuzhou Chemical Industry is expected to generate 1.12 times more return on investment than Beijing Sanyuan. However, Liuzhou Chemical is 1.12 times more volatile than Beijing Sanyuan Foods. It trades about 0.19 of its potential returns per unit of risk. Beijing Sanyuan Foods is currently generating about 0.17 per unit of risk. If you would invest  227.00  in Liuzhou Chemical Industry on September 23, 2024 and sell it today you would earn a total of  88.00  from holding Liuzhou Chemical Industry or generate 38.77% return on investment over 90 days.

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

Liuzhou Chemical Industry  vs.  Beijing Sanyuan Foods

Liuzhou Chemical Industry

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Sanyuan Foods

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Sanyuan Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liuzhou Chemical and Beijing Sanyuan

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

The idea behind Liuzhou Chemical Industry and Beijing Sanyuan Foods 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.