Correlation Between Liaoning Dingjide and Shenzhen Kexin

Can any of the company-specific risk be diversified away by investing in both Liaoning Dingjide and Shenzhen Kexin 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 Shenzhen Kexin 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 Shenzhen Kexin Communication, you can compare the effects of market volatilities on Liaoning Dingjide and Shenzhen Kexin 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 Shenzhen Kexin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Dingjide and Shenzhen Kexin.

Diversification Opportunities for Liaoning Dingjide and Shenzhen Kexin

0.21

Correlation Coefficient

Liaoning Dingjide  Shenzhen Kexin

Modest diversification

The 3 months correlation between Liaoning and Shenzhen is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Dingjide Petrochemica and Shenzhen Kexin Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Kexin Commu 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 Shenzhen Kexin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Kexin Commu has no effect on the direction of Liaoning Dingjide i.e., Liaoning Dingjide and Shenzhen Kexin go up and down completely randomly.

Pair Corralation between Liaoning Dingjide and Shenzhen Kexin

Assuming the 90 days trading horizon Liaoning Dingjide Petrochemical is expected to generate 0.85 times more return on investment than Shenzhen Kexin. However, Liaoning Dingjide Petrochemical is 1.18 times less risky than Shenzhen Kexin. It trades about 0.06 of its potential returns per unit of risk. Shenzhen Kexin Communication is currently generating about -0.12 per unit of risk. If you would invest  3,039  in Liaoning Dingjide Petrochemical on September 27, 2024 and sell it today you would earn a total of  75.00  from holding Liaoning Dingjide Petrochemical or generate 2.47% return on investment over 90 days.

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

Liaoning Dingjide Petrochemica  vs.  Shenzhen Kexin Communication

Liaoning Dingjide

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Kexin Commu

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Kexin Communication are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Kexin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liaoning Dingjide and Shenzhen Kexin

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

The idea behind Liaoning Dingjide Petrochemical and Shenzhen Kexin Communication 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.