Correlation Between Liaoning Dingjide and China Merchants

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

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

Diversification Opportunities for Liaoning Dingjide and China Merchants

0.6

Correlation Coefficient

Liaoning Dingjide  China Merchants

Poor diversification

The 3 months correlation between Liaoning and China is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Dingjide Petrochemica and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou and Liaoning Dingjide 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 Liaoning Dingjide Petrochemical are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Shekou has no effect on the direction of Liaoning Dingjide i.e., Liaoning Dingjide and China Merchants go up and down completely randomly.

Pair Corralation between Liaoning Dingjide and China Merchants

Assuming the 90 days trading horizon Liaoning Dingjide Petrochemical is expected to generate 1.77 times more return on investment than China Merchants. However, Liaoning Dingjide is 1.77 times more volatile than China Merchants Shekou. It trades about 0.03 of its potential returns per unit of risk. China Merchants Shekou is currently generating about -0.09 per unit of risk. If you would invest  3,114  in Liaoning Dingjide Petrochemical on December 25, 2024 and sell it today you would earn a total of  76.00  from holding Liaoning Dingjide Petrochemical or generate 2.44% return on investment over 90 days.

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

Liaoning Dingjide Petrochemica  vs.  China Merchants Shekou

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.

China Merchants Shekou

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Merchants Shekou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Liaoning Dingjide and China Merchants

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

The idea behind Liaoning Dingjide Petrochemical and China Merchants Shekou 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.