Correlation Between Senci Electric and China Longyuan

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

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

Diversification Opportunities for Senci Electric and China Longyuan

0.14

Correlation Coefficient

Senci Electric  China Longyuan

Average diversification

The 3 months correlation between Senci and China is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Senci Electric Machinery 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 Senci Electric 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 Senci Electric Machinery 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 Senci Electric i.e., Senci Electric and China Longyuan go up and down completely randomly.

Pair Corralation between Senci Electric and China Longyuan

Assuming the 90 days trading horizon Senci Electric Machinery is expected to generate 1.14 times more return on investment than China Longyuan. However, Senci Electric is 1.14 times more volatile than China Longyuan Power. It trades about 0.06 of its potential returns per unit of risk. China Longyuan Power is currently generating about -0.08 per unit of risk. If you would invest  1,536  in Senci Electric Machinery on October 6, 2024 and sell it today you would earn a total of  157.00  from holding Senci Electric Machinery or generate 10.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Senci Electric Machinery  vs.  China Longyuan Power

Senci Electric Machinery

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Senci Electric Machinery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Senci Electric sustained solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with Senci Electric and China Longyuan

The main advantage of trading using opposite Senci Electric and China Longyuan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Senci Electric 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 Senci Electric Machinery 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .