Correlation Between Liaoning Chengda and Guangdong Shenglu

Can any of the company-specific risk be diversified away by investing in both Liaoning Chengda and Guangdong Shenglu 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 Liaoning Chengda and Guangdong Shenglu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liaoning Chengda Biotechnology and Guangdong Shenglu Telecommunication, you can compare the effects of market volatilities on Liaoning Chengda and Guangdong Shenglu 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 Liaoning Chengda with a short position of Guangdong Shenglu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Chengda and Guangdong Shenglu.

Diversification Opportunities for Liaoning Chengda and Guangdong Shenglu

0.92

Correlation Coefficient

Liaoning Chengda  Guangdong Shenglu

Almost no diversification

The 3 months correlation between Liaoning and Guangdong is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu and Liaoning Chengda 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 Liaoning Chengda Biotechnology are associated (or correlated) with Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Guangdong Shenglu

Assuming the 90 days trading horizon Liaoning Chengda Biotechnology is expected to generate 0.45 times more return on investment than Guangdong Shenglu. However, Liaoning Chengda Biotechnology is 2.21 times less risky than Guangdong Shenglu. It trades about -0.1 of its potential returns per unit of risk. Guangdong Shenglu Telecommunication is currently generating about -0.07 per unit of risk. If you would invest  2,715  in Liaoning Chengda Biotechnology on October 24, 2024 and sell it today you would lose (240.00) from holding Liaoning Chengda Biotechnology or give up 8.84% of portfolio value over 90 days.

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

Liaoning Chengda Biotechnology  vs.  Guangdong Shenglu Telecommunic

Liaoning Chengda Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liaoning Chengda Biotechnology 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.

Guangdong Shenglu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Shenglu Telecommunication 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 Liaoning Chengda and Guangdong Shenglu

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

The idea behind Liaoning Chengda Biotechnology and Guangdong Shenglu Telecommunication 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.