Correlation Between Loongson Technology and China Publishing

Can any of the company-specific risk be diversified away by investing in both Loongson Technology and China Publishing 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 China Publishing 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 China Publishing Media, you can compare the effects of market volatilities on Loongson Technology and China Publishing 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 China Publishing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loongson Technology and China Publishing.

Diversification Opportunities for Loongson Technology and China Publishing

0.84

Correlation Coefficient

Loongson Technology  China Publishing

Very poor diversification

The 3 months correlation between Loongson and China is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Loongson Technology Corp and China Publishing Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Publishing Media 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 China Publishing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Publishing Media has no effect on the direction of Loongson Technology i.e., Loongson Technology and China Publishing go up and down completely randomly.

Pair Corralation between Loongson Technology and China Publishing

Assuming the 90 days trading horizon Loongson Technology Corp is expected to generate 1.4 times more return on investment than China Publishing. However, Loongson Technology is 1.4 times more volatile than China Publishing Media. It trades about 0.22 of its potential returns per unit of risk. China Publishing Media is currently generating about 0.18 per unit of risk. If you would invest  8,960  in Loongson Technology Corp on September 2, 2024 and sell it today you would earn a total of  7,560  from holding Loongson Technology Corp or generate 84.38% return on investment over 90 days.

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

Loongson Technology Corp  vs.  China Publishing Media

Loongson Technology Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Loongson Technology Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Loongson Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

China Publishing Media

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Publishing Media are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Publishing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loongson Technology and China Publishing

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

The idea behind Loongson Technology Corp and China Publishing Media 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.