Correlation Between Liuzhou Chemical and Road Environment

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

Diversification Opportunities for Liuzhou Chemical and Road Environment

0.77

Correlation Coefficient

Liuzhou Chemical  Road Environment

Poor diversification

The 3 months correlation between Liuzhou and Road is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Liuzhou Chemical Industry and Road Environment Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Road Environment Tec 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 Road Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Road Environment Tec has no effect on the direction of Liuzhou Chemical i.e., Liuzhou Chemical and Road Environment go up and down completely randomly.

Pair Corralation between Liuzhou Chemical and Road Environment

Assuming the 90 days trading horizon Liuzhou Chemical Industry is expected to generate 0.88 times more return on investment than Road Environment. However, Liuzhou Chemical Industry is 1.13 times less risky than Road Environment. It trades about 0.0 of its potential returns per unit of risk. Road Environment Technology is currently generating about -0.05 per unit of risk. If you would invest  329.00  in Liuzhou Chemical Industry on October 4, 2024 and sell it today you would lose (35.00) from holding Liuzhou Chemical Industry or give up 10.64% of portfolio value over 90 days.

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

Liuzhou Chemical Industry  vs.  Road Environment Technology

Liuzhou Chemical Industry

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Chemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Road Environment Tec

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Liuzhou Chemical and Road Environment

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

The idea behind Liuzhou Chemical Industry and Road Environment Technology 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..