Correlation Between Hunan Tyen and Shandong Longquan

Can any of the company-specific risk be diversified away by investing in both Hunan Tyen and Shandong Longquan 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 Hunan Tyen and Shandong Longquan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hunan Tyen Machinery and Shandong Longquan Pipeline, you can compare the effects of market volatilities on Hunan Tyen and Shandong Longquan 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 Hunan Tyen with a short position of Shandong Longquan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Tyen and Shandong Longquan.

Diversification Opportunities for Hunan Tyen and Shandong Longquan

0.32

Correlation Coefficient

Hunan Tyen  Shandong Longquan

Weak diversification

The 3 months correlation between Hunan and Shandong is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Tyen Machinery and Shandong Longquan Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longquan and Hunan Tyen 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 Hunan Tyen Machinery are associated (or correlated) with Shandong Longquan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longquan has no effect on the direction of Hunan Tyen i.e., Hunan Tyen and Shandong Longquan go up and down completely randomly.

Pair Corralation between Hunan Tyen and Shandong Longquan

Assuming the 90 days trading horizon Hunan Tyen Machinery is expected to generate 1.93 times more return on investment than Shandong Longquan. However, Hunan Tyen is 1.93 times more volatile than Shandong Longquan Pipeline. It trades about 0.08 of its potential returns per unit of risk. Shandong Longquan Pipeline is currently generating about -0.09 per unit of risk. If you would invest  558.00  in Hunan Tyen Machinery on December 5, 2024 and sell it today you would earn a total of  75.00  from holding Hunan Tyen Machinery or generate 13.44% return on investment over 90 days.

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

Hunan Tyen Machinery  vs.  Shandong Longquan Pipeline

Hunan Tyen Machinery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Tyen Machinery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Tyen sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Longquan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Longquan Pipeline 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.

Pair Trading with Hunan Tyen and Shandong Longquan

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

The idea behind Hunan Tyen Machinery and Shandong Longquan Pipeline 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.