Correlation Between Xian International and Lepu Medical

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

By analyzing existing cross correlation between Xian International Medical and Lepu Medical Tech, you can compare the effects of market volatilities on Xian International and Lepu Medical 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 Xian International with a short position of Lepu Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xian International and Lepu Medical.

Diversification Opportunities for Xian International and Lepu Medical

0.79

Correlation Coefficient

Xian International  Lepu Medical

Poor diversification

The 3 months correlation between Xian and Lepu is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Xian International Medical and Lepu Medical Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lepu Medical Tech and Xian International 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 Xian International Medical are associated (or correlated) with Lepu Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lepu Medical Tech has no effect on the direction of Xian International i.e., Xian International and Lepu Medical go up and down completely randomly.

Pair Corralation between Xian International and Lepu Medical

Assuming the 90 days trading horizon Xian International Medical is expected to under-perform the Lepu Medical. But the stock apears to be less risky and, when comparing its historical volatility, Xian International Medical is 1.12 times less risky than Lepu Medical. The stock trades about -0.03 of its potential returns per unit of risk. The Lepu Medical Tech is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,579  in Lepu Medical Tech on September 26, 2024 and sell it today you would lose (391.00) from holding Lepu Medical Tech or give up 24.76% of portfolio value over 90 days.

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

Xian International Medical  vs.  Lepu Medical Tech

Xian International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xian International Medical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xian International sustained solid returns over the last few months and may actually be approaching a breakup point.

Lepu Medical Tech

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lepu Medical Tech are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lepu Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xian International and Lepu Medical

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

The idea behind Xian International Medical and Lepu Medical Tech 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.