Correlation Between Ping An and China Longyuan

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

By analyzing existing cross correlation between Ping An Insurance and China Longyuan Power, you can compare the effects of market volatilities on Ping An and China Longyuan 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 Ping An with a short position of China Longyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ping An and China Longyuan.

Diversification Opportunities for Ping An and China Longyuan

0.16

Correlation Coefficient

Ping An  China Longyuan

Average diversification

The 3 months correlation between Ping and China is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Ping An Insurance and China Longyuan Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Longyuan Power and Ping An 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 Ping An Insurance are associated (or correlated) with China Longyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Longyuan Power has no effect on the direction of Ping An i.e., Ping An and China Longyuan go up and down completely randomly.

Pair Corralation between Ping An and China Longyuan

Assuming the 90 days trading horizon Ping An Insurance is expected to generate 0.87 times more return on investment than China Longyuan. However, Ping An Insurance is 1.15 times less risky than China Longyuan. It trades about -0.2 of its potential returns per unit of risk. China Longyuan Power is currently generating about -0.32 per unit of risk. If you would invest  5,393  in Ping An Insurance on October 5, 2024 and sell it today you would lose (363.00) from holding Ping An Insurance or give up 6.73% of portfolio value over 90 days.

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

Ping An Insurance  vs.  China Longyuan Power

Ping An Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ping An Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

China Longyuan Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Longyuan Power 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 Ping An and China Longyuan

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

The idea behind Ping An Insurance and China Longyuan Power 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.