Correlation Between China Overseas and Longfor Group

Can any of the company-specific risk be diversified away by investing in both China Overseas and Longfor Group 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 China Overseas and Longfor Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Overseas Land and Longfor Group Holdings, you can compare the effects of market volatilities on China Overseas and Longfor Group 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 China Overseas with a short position of Longfor Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Overseas and Longfor Group.

Diversification Opportunities for China Overseas and Longfor Group

0.35

Correlation Coefficient

China Overseas  Longfor Group

Weak diversification

The 3 months correlation between China and Longfor is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding China Overseas Land and Longfor Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longfor Group Holdings and China Overseas 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 China Overseas Land are associated (or correlated) with Longfor Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longfor Group Holdings has no effect on the direction of China Overseas i.e., China Overseas and Longfor Group go up and down completely randomly.

Pair Corralation between China Overseas and Longfor Group

Assuming the 90 days horizon China Overseas is expected to generate 1.6 times less return on investment than Longfor Group. In addition to that, China Overseas is 1.12 times more volatile than Longfor Group Holdings. It trades about 0.07 of its total potential returns per unit of risk. Longfor Group Holdings is currently generating about 0.12 per unit of volatility. If you would invest  126.00  in Longfor Group Holdings on September 1, 2024 and sell it today you would earn a total of  45.00  from holding Longfor Group Holdings or generate 35.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Overseas Land  vs.  Longfor Group Holdings

China Overseas Land

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Overseas Land are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, China Overseas showed solid returns over the last few months and may actually be approaching a breakup point.

Longfor Group Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Longfor Group Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Longfor Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Overseas and Longfor Group

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

The idea behind China Overseas Land and Longfor Group Holdings 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.