Correlation Between Ningxia Building and Liuzhou Chemical

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

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

Diversification Opportunities for Ningxia Building and Liuzhou Chemical

0.0

Correlation Coefficient

Ningxia Building  Liuzhou Chemical

Pay attention - limited upside

The 3 months correlation between Ningxia and Liuzhou is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Ningxia Building Materials and Liuzhou Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Chemical Industry and Ningxia Building 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 Ningxia Building Materials are associated (or correlated) with Liuzhou Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Chemical Industry has no effect on the direction of Ningxia Building i.e., Ningxia Building and Liuzhou Chemical go up and down completely randomly.

Pair Corralation between Ningxia Building and Liuzhou Chemical

Assuming the 90 days trading horizon Ningxia Building Materials is expected to under-perform the Liuzhou Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Ningxia Building Materials is 1.56 times less risky than Liuzhou Chemical. The stock trades about -0.05 of its potential returns per unit of risk. The Liuzhou Chemical Industry is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  273.00  in Liuzhou Chemical Industry on October 25, 2024 and sell it today you would earn a total of  39.00  from holding Liuzhou Chemical Industry or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ningxia Building Materials  vs.  Liuzhou Chemical Industry

Ningxia Building Mat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningxia Building Materials 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.

Liuzhou Chemical Industry

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 5 (%) 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.

Pair Trading with Ningxia Building and Liuzhou Chemical

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

The idea behind Ningxia Building Materials and Liuzhou Chemical Industry 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.