Correlation Between Sinosteel Luonai and Ningbo Tip

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

Diversification Opportunities for Sinosteel Luonai and Ningbo Tip

0.22

Correlation Coefficient

Sinosteel Luonai  Ningbo Tip

Modest diversification

The 3 months correlation between Sinosteel and Ningbo is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Sinosteel Luonai Materials and Ningbo Tip Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Tip 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 Ningbo Tip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Tip Rubber has no effect on the direction of Sinosteel Luonai i.e., Sinosteel Luonai and Ningbo Tip go up and down completely randomly.

Pair Corralation between Sinosteel Luonai and Ningbo Tip

Assuming the 90 days trading horizon Sinosteel Luonai Materials is expected to under-perform the Ningbo Tip. But the stock apears to be less risky and, when comparing its historical volatility, Sinosteel Luonai Materials is 2.8 times less risky than Ningbo Tip. The stock trades about -0.17 of its potential returns per unit of risk. The Ningbo Tip Rubber is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,388  in Ningbo Tip Rubber on December 3, 2024 and sell it today you would earn a total of  74.00  from holding Ningbo Tip Rubber or generate 5.33% return on investment over 90 days.

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

Sinosteel Luonai Materials  vs.  Ningbo Tip Rubber

Sinosteel Luonai Mat

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ningbo Tip Rubber

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Tip Rubber are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Tip may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Sinosteel Luonai and Ningbo Tip

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

The idea behind Sinosteel Luonai Materials and Ningbo Tip 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.