Correlation Between Song Hong and Long Giang

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

By analyzing existing cross correlation between Song Hong Construction and Long Giang Investment, you can compare the effects of market volatilities on Song Hong and Long Giang 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 Song Hong with a short position of Long Giang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Hong and Long Giang.

Diversification Opportunities for Song Hong and Long Giang

0.57

Correlation Coefficient

Song Hong  Long Giang

Very weak diversification

The 3 months correlation between Song and Long is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Construction and Long Giang Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Giang Investment and Song Hong 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 Song Hong Construction are associated (or correlated) with Long Giang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Giang Investment has no effect on the direction of Song Hong i.e., Song Hong and Long Giang go up and down completely randomly.

Pair Corralation between Song Hong and Long Giang

Assuming the 90 days trading horizon Song Hong is expected to generate 3.16 times less return on investment than Long Giang. But when comparing it to its historical volatility, Song Hong Construction is 1.18 times less risky than Long Giang. It trades about 0.07 of its potential returns per unit of risk. Long Giang Investment is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  242,000  in Long Giang Investment on December 19, 2024 and sell it today you would earn a total of  65,000  from holding Long Giang Investment or generate 26.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	76.27%
Values	Daily Returns

Song Hong Construction  vs.  Long Giang Investment

Song Hong Construction

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Song Hong Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Song Hong may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Long Giang Investment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Long Giang Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Long Giang displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Song Hong and Long Giang

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

The idea behind Song Hong Construction and Long Giang Investment 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.