Correlation Between Loongson Technology and ChengDu Hi

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Can any of the company-specific risk be diversified away by investing in both Loongson Technology and ChengDu Hi 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 Loongson Technology and ChengDu Hi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Loongson Technology Corp and ChengDu Hi Tech Development, you can compare the effects of market volatilities on Loongson Technology and ChengDu Hi 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 Loongson Technology with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loongson Technology and ChengDu Hi.

Diversification Opportunities for Loongson Technology and ChengDu Hi

0.16
  Correlation Coefficient

Average diversification

The 3 months correlation between Loongson and ChengDu is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Loongson Technology Corp and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and Loongson Technology 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 Loongson Technology Corp are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of Loongson Technology i.e., Loongson Technology and ChengDu Hi go up and down completely randomly.

Pair Corralation between Loongson Technology and ChengDu Hi

Assuming the 90 days trading horizon Loongson Technology Corp is expected to under-perform the ChengDu Hi. But the stock apears to be less risky and, when comparing its historical volatility, Loongson Technology Corp is 1.5 times less risky than ChengDu Hi. The stock trades about -0.47 of its potential returns per unit of risk. The ChengDu Hi Tech Development is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  5,962  in ChengDu Hi Tech Development on October 6, 2024 and sell it today you would lose (820.00) from holding ChengDu Hi Tech Development or give up 13.75% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Loongson Technology Corp  vs.  ChengDu Hi Tech Development

 Performance 
       Timeline  
Loongson Technology Corp 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Loongson Technology Corp 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.
ChengDu Hi Tech 

Risk-Adjusted Performance

0 of 100

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

Loongson Technology and ChengDu Hi Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Loongson Technology and ChengDu Hi

The main advantage of trading using opposite Loongson Technology and ChengDu Hi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Loongson Technology position performs unexpectedly, ChengDu Hi 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 ChengDu Hi will offset losses from the drop in ChengDu Hi's long position.
The idea behind Loongson Technology Corp and ChengDu Hi Tech Development 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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