Correlation Between Liaoning Dingjide and Sichuan Teway

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

Diversification Opportunities for Liaoning Dingjide and Sichuan Teway

0.51

Correlation Coefficient

Liaoning Dingjide  Sichuan Teway

Very weak diversification

The 3 months correlation between Liaoning and Sichuan is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Dingjide Petrochemica and Sichuan Teway Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Teway Food 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 Sichuan Teway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Teway Food has no effect on the direction of Liaoning Dingjide i.e., Liaoning Dingjide and Sichuan Teway go up and down completely randomly.

Pair Corralation between Liaoning Dingjide and Sichuan Teway

Assuming the 90 days trading horizon Liaoning Dingjide Petrochemical is expected to generate 1.28 times more return on investment than Sichuan Teway. However, Liaoning Dingjide is 1.28 times more volatile than Sichuan Teway Food. It trades about -0.01 of its potential returns per unit of risk. Sichuan Teway Food is currently generating about -0.03 per unit of risk. If you would invest  4,840  in Liaoning Dingjide Petrochemical on October 4, 2024 and sell it today you would lose (1,472) from holding Liaoning Dingjide Petrochemical or give up 30.41% of portfolio value over 90 days.

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

Liaoning Dingjide Petrochemica  vs.  Sichuan Teway Food

Liaoning Dingjide

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sichuan Teway Food

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Teway Food are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Teway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Liaoning Dingjide and Sichuan Teway

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

The idea behind Liaoning Dingjide Petrochemical and Sichuan Teway Food 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.