Correlation Between Guangdong Liantai and Bomin Electronics

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

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

Diversification Opportunities for Guangdong Liantai and Bomin Electronics

0.79

Correlation Coefficient

Guangdong Liantai  Bomin Electronics

Poor diversification

The 3 months correlation between Guangdong and Bomin is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Bomin Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bomin Electronics and Guangdong Liantai 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 Liantai Environmental are associated (or correlated) with Bomin Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bomin Electronics has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Bomin Electronics go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Bomin Electronics

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to under-perform the Bomin Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Liantai Environmental is 1.44 times less risky than Bomin Electronics. The stock trades about -0.02 of its potential returns per unit of risk. The Bomin Electronics Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,387  in Bomin Electronics Co on September 27, 2024 and sell it today you would lose (468.00) from holding Bomin Electronics Co or give up 33.74% of portfolio value over 90 days.

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

Guangdong Liantai Environmenta  vs.  Bomin Electronics Co

Guangdong Liantai

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Liantai sustained solid returns over the last few months and may actually be approaching a breakup point.

Bomin Electronics

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Guangdong Liantai and Bomin Electronics

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

The idea behind Guangdong Liantai Environmental and Bomin Electronics Co 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.