Correlation Between Industrial and China Longyuan

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

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

Diversification Opportunities for Industrial and China Longyuan

0.34

Correlation Coefficient

Industrial  China Longyuan

Weak diversification

The 3 months correlation between Industrial and China is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial 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 Industrial 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 Industrial and Commercial 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 Industrial i.e., Industrial and China Longyuan go up and down completely randomly.

Pair Corralation between Industrial and China Longyuan

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.63 times more return on investment than China Longyuan. However, Industrial and Commercial is 1.58 times less risky than China Longyuan. It trades about 0.1 of its potential returns per unit of risk. China Longyuan Power is currently generating about 0.01 per unit of risk. If you would invest  570.00  in Industrial and Commercial on September 26, 2024 and sell it today you would earn a total of  108.00  from holding Industrial and Commercial or generate 18.95% return on investment over 90 days.

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

Industrial and Commercial  vs.  China Longyuan Power

Industrial and Commercial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Longyuan Power

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Industrial and China Longyuan

The main advantage of trading using opposite Industrial and China Longyuan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial 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 Industrial and Commercial 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.

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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.