Correlation Between Fuda Alloy and Liaoning Dingjide

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

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

Diversification Opportunities for Fuda Alloy and Liaoning Dingjide

-0.59

Correlation Coefficient

Fuda Alloy  Liaoning Dingjide

Excellent diversification

The 3 months correlation between Fuda and Liaoning is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Fuda Alloy Materials and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide and Fuda Alloy 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 Fuda Alloy Materials 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 Fuda Alloy i.e., Fuda Alloy and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Fuda Alloy and Liaoning Dingjide

Assuming the 90 days trading horizon Fuda Alloy Materials is expected to generate 1.09 times more return on investment than Liaoning Dingjide. However, Fuda Alloy is 1.09 times more volatile than Liaoning Dingjide Petrochemical. It trades about 0.2 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  1,188  in Fuda Alloy Materials on December 25, 2024 and sell it today you would earn a total of  447.00  from holding Fuda Alloy Materials or generate 37.63% return on investment over 90 days.

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

Fuda Alloy Materials  vs.  Liaoning Dingjide Petrochemica

Fuda Alloy Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fuda Alloy Materials are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fuda Alloy 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 Fuda Alloy and Liaoning Dingjide

The main advantage of trading using opposite Fuda Alloy and Liaoning Dingjide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fuda Alloy 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 Fuda Alloy Materials 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.