Correlation Between China New and Lonza

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

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

Diversification Opportunities for China New and Lonza

0.22

Correlation Coefficient

China New  Lonza

Modest diversification

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

Pair Corralation between China New and Lonza

Given the investment horizon of 90 days China New Energy is expected to generate 11.86 times more return on investment than Lonza. However, China New is 11.86 times more volatile than Lonza Group. It trades about 0.07 of its potential returns per unit of risk. Lonza Group is currently generating about 0.01 per unit of risk. If you would invest  1.20  in China New Energy on October 10, 2024 and sell it today you would lose (0.80) from holding China New Energy or give up 66.67% of portfolio value over 90 days.

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

China New Energy  vs.  Lonza Group

China New Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China New Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, China New reported solid returns over the last few months and may actually be approaching a breakup point.

Lonza Group

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lonza Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Lonza is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China New and Lonza

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

The idea behind China New Energy and Lonza Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.