Correlation Between Long Yuan and Sichuan Hebang

Can any of the company-specific risk be diversified away by investing in both Long Yuan and Sichuan Hebang 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 Long Yuan and Sichuan Hebang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Long Yuan Construction and Sichuan Hebang Biotechnology, you can compare the effects of market volatilities on Long Yuan and Sichuan Hebang 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 Long Yuan with a short position of Sichuan Hebang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Yuan and Sichuan Hebang.

Diversification Opportunities for Long Yuan and Sichuan Hebang

0.56

Correlation Coefficient

Long Yuan  Sichuan Hebang

Very weak diversification

The 3 months correlation between Long and Sichuan is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Long Yuan Construction and Sichuan Hebang Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Hebang Biote and Long Yuan 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 Long Yuan Construction are associated (or correlated) with Sichuan Hebang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Hebang Biote has no effect on the direction of Long Yuan i.e., Long Yuan and Sichuan Hebang go up and down completely randomly.

Pair Corralation between Long Yuan and Sichuan Hebang

Assuming the 90 days trading horizon Long Yuan Construction is expected to under-perform the Sichuan Hebang. In addition to that, Long Yuan is 1.44 times more volatile than Sichuan Hebang Biotechnology. It trades about -0.29 of its total potential returns per unit of risk. Sichuan Hebang Biotechnology is currently generating about -0.36 per unit of volatility. If you would invest  224.00  in Sichuan Hebang Biotechnology on October 10, 2024 and sell it today you would lose (30.00) from holding Sichuan Hebang Biotechnology or give up 13.39% of portfolio value over 90 days.

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

Long Yuan Construction  vs.  Sichuan Hebang Biotechnology

Long Yuan Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Long Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Hebang Biote

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Long Yuan and Sichuan Hebang

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

The idea behind Long Yuan Construction and Sichuan Hebang Biotechnology 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.