Correlation Between Liaoning Chengda and Shenzhen Bioeasy

Can any of the company-specific risk be diversified away by investing in both Liaoning Chengda and Shenzhen Bioeasy 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 Shenzhen Bioeasy 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 Shenzhen Bioeasy Biotechnology, you can compare the effects of market volatilities on Liaoning Chengda and Shenzhen Bioeasy 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 Shenzhen Bioeasy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Chengda and Shenzhen Bioeasy.

Diversification Opportunities for Liaoning Chengda and Shenzhen Bioeasy

0.38

Correlation Coefficient

Liaoning Chengda  Shenzhen Bioeasy

Weak diversification

The 3 months correlation between Liaoning and Shenzhen is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Shenzhen Bioeasy Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Bioeasy Bio 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 Shenzhen Bioeasy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Bioeasy Bio has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and Shenzhen Bioeasy go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Shenzhen Bioeasy

Assuming the 90 days trading horizon Liaoning Chengda Biotechnology is expected to generate 0.32 times more return on investment than Shenzhen Bioeasy. However, Liaoning Chengda Biotechnology is 3.16 times less risky than Shenzhen Bioeasy. It trades about -0.51 of its potential returns per unit of risk. Shenzhen Bioeasy Biotechnology is currently generating about -0.33 per unit of risk. If you would invest  2,772  in Liaoning Chengda Biotechnology on October 9, 2024 and sell it today you would lose (273.00) from holding Liaoning Chengda Biotechnology or give up 9.85% of portfolio value over 90 days.

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

Liaoning Chengda Biotechnology  vs.  Shenzhen Bioeasy Biotechnology

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.

Shenzhen Bioeasy Bio

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Bioeasy Biotechnology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shenzhen Bioeasy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Liaoning Chengda and Shenzhen Bioeasy

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

The idea behind Liaoning Chengda Biotechnology and Shenzhen Bioeasy Biotechnology 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.