Correlation Between Guangdong Ellington and LianChuang Electronic

Can any of the company-specific risk be diversified away by investing in both Guangdong Ellington and LianChuang Electronic 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 Guangdong Ellington and LianChuang Electronic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Ellington Electronics and LianChuang Electronic Technology, you can compare the effects of market volatilities on Guangdong Ellington and LianChuang Electronic 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 Guangdong Ellington with a short position of LianChuang Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Ellington and LianChuang Electronic.

Diversification Opportunities for Guangdong Ellington and LianChuang Electronic

0.8

Correlation Coefficient

Guangdong Ellington  LianChuang Electronic

Very poor diversification

The 3 months correlation between Guangdong and LianChuang is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Ellington Electronic and LianChuang Electronic Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LianChuang Electronic and Guangdong Ellington 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 Guangdong Ellington Electronics are associated (or correlated) with LianChuang Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LianChuang Electronic has no effect on the direction of Guangdong Ellington i.e., Guangdong Ellington and LianChuang Electronic go up and down completely randomly.

Pair Corralation between Guangdong Ellington and LianChuang Electronic

Assuming the 90 days trading horizon Guangdong Ellington is expected to generate 10.53 times less return on investment than LianChuang Electronic. But when comparing it to its historical volatility, Guangdong Ellington Electronics is 1.46 times less risky than LianChuang Electronic. It trades about 0.01 of its potential returns per unit of risk. LianChuang Electronic Technology is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  986.00  in LianChuang Electronic Technology on December 28, 2024 and sell it today you would earn a total of  148.00  from holding LianChuang Electronic Technology or generate 15.01% return on investment over 90 days.

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

Guangdong Ellington Electronic  vs.  LianChuang Electronic Technolo

Guangdong Ellington

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Ellington Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Ellington is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

LianChuang Electronic

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LianChuang Electronic Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LianChuang Electronic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Ellington and LianChuang Electronic

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

The idea behind Guangdong Ellington Electronics and LianChuang Electronic Technology 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.