Correlation Between Shanghai Lingyun and Dongjiang Environmental

Can any of the company-specific risk be diversified away by investing in both Shanghai Lingyun and Dongjiang Environmental 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 Shanghai Lingyun and Dongjiang Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanghai Lingyun Industries and Dongjiang Environmental Co, you can compare the effects of market volatilities on Shanghai Lingyun and Dongjiang Environmental 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 Shanghai Lingyun with a short position of Dongjiang Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Lingyun and Dongjiang Environmental.

Diversification Opportunities for Shanghai Lingyun and Dongjiang Environmental

0.96

Correlation Coefficient

Shanghai Lingyun  Dongjiang Environmental

Almost no diversification

The 3 months correlation between Shanghai and Dongjiang is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Lingyun Industries and Dongjiang Environmental Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongjiang Environmental and Shanghai Lingyun 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 Shanghai Lingyun Industries are associated (or correlated) with Dongjiang Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongjiang Environmental has no effect on the direction of Shanghai Lingyun i.e., Shanghai Lingyun and Dongjiang Environmental go up and down completely randomly.

Pair Corralation between Shanghai Lingyun and Dongjiang Environmental

Assuming the 90 days trading horizon Shanghai Lingyun Industries is expected to generate 1.8 times more return on investment than Dongjiang Environmental. However, Shanghai Lingyun is 1.8 times more volatile than Dongjiang Environmental Co. It trades about 0.14 of its potential returns per unit of risk. Dongjiang Environmental Co is currently generating about 0.06 per unit of risk. If you would invest  19.00  in Shanghai Lingyun Industries on September 1, 2024 and sell it today you would earn a total of  20.00  from holding Shanghai Lingyun Industries or generate 105.26% return on investment over 90 days.

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

Shanghai Lingyun Industries  vs.  Dongjiang Environmental Co

Shanghai Lingyun Ind

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Lingyun Industries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Lingyun sustained solid returns over the last few months and may actually be approaching a breakup point.

Dongjiang Environmental

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dongjiang Environmental Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongjiang Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Lingyun and Dongjiang Environmental

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

The idea behind Shanghai Lingyun Industries and Dongjiang Environmental 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.