Correlation Between Lotus Pharmaceuticals and China Medicine

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

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

Diversification Opportunities for Lotus Pharmaceuticals and China Medicine

-0.04

Correlation Coefficient

Lotus Pharmaceuticals  China Medicine

Good diversification

The 3 months correlation between Lotus and China is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Lotus Pharmaceuticals and China Medicine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medicine and Lotus Pharmaceuticals 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 Lotus Pharmaceuticals are associated (or correlated) with China Medicine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medicine has no effect on the direction of Lotus Pharmaceuticals i.e., Lotus Pharmaceuticals and China Medicine go up and down completely randomly.

Pair Corralation between Lotus Pharmaceuticals and China Medicine

Given the investment horizon of 90 days Lotus Pharmaceuticals is expected to generate 0.72 times more return on investment than China Medicine. However, Lotus Pharmaceuticals is 1.39 times less risky than China Medicine. It trades about 0.2 of its potential returns per unit of risk. China Medicine is currently generating about 0.07 per unit of risk. If you would invest  0.16  in Lotus Pharmaceuticals on December 19, 2024 and sell it today you would earn a total of  0.62  from holding Lotus Pharmaceuticals or generate 387.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Lotus Pharmaceuticals  vs.  China Medicine

Lotus Pharmaceuticals

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lotus Pharmaceuticals are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lotus Pharmaceuticals unveiled solid returns over the last few months and may actually be approaching a breakup point.

China Medicine

Risk-Adjusted Performance

Modest

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

Pair Trading with Lotus Pharmaceuticals and China Medicine

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

The idea behind Lotus Pharmaceuticals and China Medicine 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.