Correlation Between Sinosteel Luonai and Tianjin Pengling

Can any of the company-specific risk be diversified away by investing in both Sinosteel Luonai and Tianjin Pengling 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 Sinosteel Luonai and Tianjin Pengling into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sinosteel Luonai Materials and Tianjin Pengling Rubber, you can compare the effects of market volatilities on Sinosteel Luonai and Tianjin Pengling 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 Sinosteel Luonai with a short position of Tianjin Pengling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinosteel Luonai and Tianjin Pengling.

Diversification Opportunities for Sinosteel Luonai and Tianjin Pengling

0.85

Correlation Coefficient

Sinosteel Luonai  Tianjin Pengling

Very poor diversification

The 3 months correlation between Sinosteel and Tianjin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Sinosteel Luonai Materials and Tianjin Pengling Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Pengling Rubber and Sinosteel Luonai 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 Sinosteel Luonai Materials are associated (or correlated) with Tianjin Pengling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Pengling Rubber has no effect on the direction of Sinosteel Luonai i.e., Sinosteel Luonai and Tianjin Pengling go up and down completely randomly.

Pair Corralation between Sinosteel Luonai and Tianjin Pengling

Assuming the 90 days trading horizon Sinosteel Luonai Materials is expected to generate 0.62 times more return on investment than Tianjin Pengling. However, Sinosteel Luonai Materials is 1.61 times less risky than Tianjin Pengling. It trades about -0.54 of its potential returns per unit of risk. Tianjin Pengling Rubber is currently generating about -0.39 per unit of risk. If you would invest  443.00  in Sinosteel Luonai Materials on October 7, 2024 and sell it today you would lose (73.00) from holding Sinosteel Luonai Materials or give up 16.48% of portfolio value over 90 days.

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

Sinosteel Luonai Materials  vs.  Tianjin Pengling Rubber

Sinosteel Luonai Mat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sinosteel Luonai Materials 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.

Tianjin Pengling Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tianjin Pengling Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sinosteel Luonai and Tianjin Pengling

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

The idea behind Sinosteel Luonai Materials and Tianjin Pengling Rubber 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..