Correlation Between Longjian Road and Fuzhou Rockchip

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Can any of the company-specific risk be diversified away by investing in both Longjian Road and Fuzhou Rockchip 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 Fuzhou Rockchip 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 Fuzhou Rockchip Electronics, you can compare the effects of market volatilities on Longjian Road and Fuzhou Rockchip 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 Fuzhou Rockchip. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longjian Road and Fuzhou Rockchip.

Diversification Opportunities for Longjian Road and Fuzhou Rockchip

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Longjian and Fuzhou is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Longjian Road Bridge and Fuzhou Rockchip Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuzhou Rockchip Elec 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 Fuzhou Rockchip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuzhou Rockchip Elec has no effect on the direction of Longjian Road i.e., Longjian Road and Fuzhou Rockchip go up and down completely randomly.

Pair Corralation between Longjian Road and Fuzhou Rockchip

Assuming the 90 days trading horizon Longjian Road Bridge is expected to under-perform the Fuzhou Rockchip. But the stock apears to be less risky and, when comparing its historical volatility, Longjian Road Bridge is 1.38 times less risky than Fuzhou Rockchip. The stock trades about -0.17 of its potential returns per unit of risk. The Fuzhou Rockchip Electronics is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8,379  in Fuzhou Rockchip Electronics on October 8, 2024 and sell it today you would earn a total of  1,570  from holding Fuzhou Rockchip Electronics or generate 18.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Longjian Road Bridge  vs.  Fuzhou Rockchip Electronics

 Performance 
       Timeline  
Longjian Road Bridge 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Longjian Road Bridge are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.
Fuzhou Rockchip Elec 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Fuzhou Rockchip Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fuzhou Rockchip sustained solid returns over the last few months and may actually be approaching a breakup point.

Longjian Road and Fuzhou Rockchip Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Longjian Road and Fuzhou Rockchip

The main advantage of trading using opposite Longjian Road and Fuzhou Rockchip positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Longjian Road position performs unexpectedly, Fuzhou Rockchip 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 Fuzhou Rockchip will offset losses from the drop in Fuzhou Rockchip's long position.
The idea behind Longjian Road Bridge and Fuzhou Rockchip Electronics 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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