Correlation Between Anhui Liuguo and China Reform

Can any of the company-specific risk be diversified away by investing in both Anhui Liuguo and China Reform 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 Anhui Liuguo and China Reform into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Liuguo Chemical and China Reform Health, you can compare the effects of market volatilities on Anhui Liuguo and China Reform 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 Anhui Liuguo with a short position of China Reform. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Liuguo and China Reform.

Diversification Opportunities for Anhui Liuguo and China Reform

0.72

Correlation Coefficient

Anhui Liuguo  China Reform

Poor diversification

The 3 months correlation between Anhui and China is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Liuguo Chemical and China Reform Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reform Health and Anhui Liuguo 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 Anhui Liuguo Chemical are associated (or correlated) with China Reform. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reform Health has no effect on the direction of Anhui Liuguo i.e., Anhui Liuguo and China Reform go up and down completely randomly.

Pair Corralation between Anhui Liuguo and China Reform

Assuming the 90 days trading horizon Anhui Liuguo Chemical is expected to generate 0.66 times more return on investment than China Reform. However, Anhui Liuguo Chemical is 1.51 times less risky than China Reform. It trades about 0.07 of its potential returns per unit of risk. China Reform Health is currently generating about 0.03 per unit of risk. If you would invest  560.00  in Anhui Liuguo Chemical on December 24, 2024 and sell it today you would earn a total of  44.00  from holding Anhui Liuguo Chemical or generate 7.86% return on investment over 90 days.

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

Anhui Liuguo Chemical  vs.  China Reform Health

Anhui Liuguo Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Liuguo Chemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Liuguo may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Reform Health

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Reform Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Reform is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Anhui Liuguo and China Reform

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

The idea behind Anhui Liuguo Chemical and China Reform Health 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.