Correlation Between Longjian Road and Hengdian Entertainment

Can any of the company-specific risk be diversified away by investing in both Longjian Road and Hengdian Entertainment 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 Longjian Road and Hengdian Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Longjian Road Bridge and Hengdian Entertainment Co, you can compare the effects of market volatilities on Longjian Road and Hengdian Entertainment 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 Longjian Road with a short position of Hengdian Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longjian Road and Hengdian Entertainment.

Diversification Opportunities for Longjian Road and Hengdian Entertainment

0.86

Correlation Coefficient

Longjian Road  Hengdian Entertainment

Very poor diversification

The 3 months correlation between Longjian and Hengdian is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Longjian Road Bridge and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment and Longjian Road 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 Longjian Road Bridge are associated (or correlated) with Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Longjian Road i.e., Longjian Road and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Longjian Road and Hengdian Entertainment

Assuming the 90 days trading horizon Longjian Road Bridge is expected to generate 0.82 times more return on investment than Hengdian Entertainment. However, Longjian Road Bridge is 1.21 times less risky than Hengdian Entertainment. It trades about 0.01 of its potential returns per unit of risk. Hengdian Entertainment Co is currently generating about -0.02 per unit of risk. If you would invest  366.00  in Longjian Road Bridge on October 14, 2024 and sell it today you would lose (12.00) from holding Longjian Road Bridge or give up 3.28% of portfolio value over 90 days.

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

Longjian Road Bridge  vs.  Hengdian Entertainment Co

Longjian Road Bridge

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hengdian Entertainment

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Longjian Road and Hengdian Entertainment

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

The idea behind Longjian Road Bridge and Hengdian Entertainment Co 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.