Correlation Between Sinosteel Luonai and Inspur Software

Can any of the company-specific risk be diversified away by investing in both Sinosteel Luonai and Inspur Software 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 Inspur Software 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 Inspur Software Co, you can compare the effects of market volatilities on Sinosteel Luonai and Inspur Software 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 Inspur Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinosteel Luonai and Inspur Software.

Diversification Opportunities for Sinosteel Luonai and Inspur Software

0.8

Correlation Coefficient

Sinosteel Luonai  Inspur Software

Very poor diversification

The 3 months correlation between Sinosteel and Inspur is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sinosteel Luonai Materials and Inspur Software Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspur Software 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 Inspur Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspur Software has no effect on the direction of Sinosteel Luonai i.e., Sinosteel Luonai and Inspur Software go up and down completely randomly.

Pair Corralation between Sinosteel Luonai and Inspur Software

Assuming the 90 days trading horizon Sinosteel Luonai Materials is expected to under-perform the Inspur Software. But the stock apears to be less risky and, when comparing its historical volatility, Sinosteel Luonai Materials is 1.21 times less risky than Inspur Software. The stock trades about -0.04 of its potential returns per unit of risk. The Inspur Software Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,545  in Inspur Software Co on October 22, 2024 and sell it today you would lose (112.00) from holding Inspur Software Co or give up 7.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

Sinosteel Luonai Materials  vs.  Inspur Software Co

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 somewhat strong basic indicators, Sinosteel Luonai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inspur Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sinosteel Luonai and Inspur Software

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

The idea behind Sinosteel Luonai Materials and Inspur Software 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.