Correlation Between Henan Lantian and Sichuan Road

Can any of the company-specific risk be diversified away by investing in both Henan Lantian and Sichuan Road 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 Henan Lantian and Sichuan Road into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Henan Lantian Gas and Sichuan Road Bridge, you can compare the effects of market volatilities on Henan Lantian and Sichuan Road 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 Henan Lantian with a short position of Sichuan Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Henan Lantian and Sichuan Road.

Diversification Opportunities for Henan Lantian and Sichuan Road

-0.46

Correlation Coefficient

Henan Lantian  Sichuan Road

Very good diversification

The 3 months correlation between Henan and Sichuan is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Henan Lantian Gas and Sichuan Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Road Bridge and Henan Lantian 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 Henan Lantian Gas are associated (or correlated) with Sichuan Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Road Bridge has no effect on the direction of Henan Lantian i.e., Henan Lantian and Sichuan Road go up and down completely randomly.

Pair Corralation between Henan Lantian and Sichuan Road

Assuming the 90 days trading horizon Henan Lantian Gas is expected to under-perform the Sichuan Road. But the stock apears to be less risky and, when comparing its historical volatility, Henan Lantian Gas is 1.62 times less risky than Sichuan Road. The stock trades about -0.05 of its potential returns per unit of risk. The Sichuan Road Bridge is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  547.00  in Sichuan Road Bridge on September 13, 2024 and sell it today you would earn a total of  209.00  from holding Sichuan Road Bridge or generate 38.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Henan Lantian Gas  vs.  Sichuan Road Bridge

Henan Lantian Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Henan Lantian Gas 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.

Sichuan Road Bridge

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Road Bridge are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Road sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Henan Lantian and Sichuan Road

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

The idea behind Henan Lantian Gas and Sichuan Road Bridge 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.