Correlation Between Epoxy Base and Liaoning Dingjide

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

By analyzing existing cross correlation between Epoxy Base Electronic and Liaoning Dingjide Petrochemical, you can compare the effects of market volatilities on Epoxy Base and Liaoning Dingjide 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 Epoxy Base with a short position of Liaoning Dingjide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Epoxy Base and Liaoning Dingjide.

Diversification Opportunities for Epoxy Base and Liaoning Dingjide

-0.35

Correlation Coefficient

Epoxy Base  Liaoning Dingjide

Very good diversification

The 3 months correlation between Epoxy and Liaoning is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Epoxy Base Electronic and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide and Epoxy Base 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 Epoxy Base Electronic are associated (or correlated) with Liaoning Dingjide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Dingjide has no effect on the direction of Epoxy Base i.e., Epoxy Base and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Epoxy Base and Liaoning Dingjide

Assuming the 90 days trading horizon Epoxy Base Electronic is expected to generate 1.18 times more return on investment than Liaoning Dingjide. However, Epoxy Base is 1.18 times more volatile than Liaoning Dingjide Petrochemical. It trades about 0.08 of its potential returns per unit of risk. Liaoning Dingjide Petrochemical is currently generating about 0.03 per unit of risk. If you would invest  555.00  in Epoxy Base Electronic on December 25, 2024 and sell it today you would earn a total of  74.00  from holding Epoxy Base Electronic or generate 13.33% return on investment over 90 days.

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

Epoxy Base Electronic  vs.  Liaoning Dingjide Petrochemica

Epoxy Base Electronic

Risk-Adjusted Performance

Modest

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

Liaoning Dingjide

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Liaoning Dingjide is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Epoxy Base and Liaoning Dingjide

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

The idea behind Epoxy Base Electronic and Liaoning Dingjide Petrochemical 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.