Correlation Between Zhangjiagang Elegant and Shandong Longquan

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

By analyzing existing cross correlation between Zhangjiagang Elegant Home and Shandong Longquan Pipeline, you can compare the effects of market volatilities on Zhangjiagang Elegant and Shandong Longquan 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 Zhangjiagang Elegant with a short position of Shandong Longquan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhangjiagang Elegant and Shandong Longquan.

Diversification Opportunities for Zhangjiagang Elegant and Shandong Longquan

0.89

Correlation Coefficient

Zhangjiagang Elegant  Shandong Longquan

Very poor diversification

The 3 months correlation between Zhangjiagang and Shandong is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Zhangjiagang Elegant Home and Shandong Longquan Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longquan and Zhangjiagang Elegant 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 Zhangjiagang Elegant Home are associated (or correlated) with Shandong Longquan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longquan has no effect on the direction of Zhangjiagang Elegant i.e., Zhangjiagang Elegant and Shandong Longquan go up and down completely randomly.

Pair Corralation between Zhangjiagang Elegant and Shandong Longquan

Assuming the 90 days trading horizon Zhangjiagang Elegant Home is expected to generate 1.46 times more return on investment than Shandong Longquan. However, Zhangjiagang Elegant is 1.46 times more volatile than Shandong Longquan Pipeline. It trades about 0.13 of its potential returns per unit of risk. Shandong Longquan Pipeline is currently generating about 0.17 per unit of risk. If you would invest  943.00  in Zhangjiagang Elegant Home on September 23, 2024 and sell it today you would earn a total of  72.00  from holding Zhangjiagang Elegant Home or generate 7.64% return on investment over 90 days.

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

Zhangjiagang Elegant Home  vs.  Shandong Longquan Pipeline

Zhangjiagang Elegant Home

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhangjiagang Elegant Home are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhangjiagang Elegant sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Longquan

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Longquan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhangjiagang Elegant and Shandong Longquan

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

The idea behind Zhangjiagang Elegant Home and Shandong Longquan Pipeline 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.