Correlation Between Shenyang Chemical and Longmaster Information

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

By analyzing existing cross correlation between Shenyang Chemical Industry and Longmaster Information Tech, you can compare the effects of market volatilities on Shenyang Chemical and Longmaster Information 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 Shenyang Chemical with a short position of Longmaster Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Chemical and Longmaster Information.

Diversification Opportunities for Shenyang Chemical and Longmaster Information

0.89

Correlation Coefficient

Shenyang Chemical  Longmaster Information

Very poor diversification

The 3 months correlation between Shenyang and Longmaster is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Chemical Industry and Longmaster Information Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longmaster Information and Shenyang Chemical 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 Shenyang Chemical Industry are associated (or correlated) with Longmaster Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longmaster Information has no effect on the direction of Shenyang Chemical i.e., Shenyang Chemical and Longmaster Information go up and down completely randomly.

Pair Corralation between Shenyang Chemical and Longmaster Information

Assuming the 90 days trading horizon Shenyang Chemical is expected to generate 1.13 times less return on investment than Longmaster Information. But when comparing it to its historical volatility, Shenyang Chemical Industry is 1.36 times less risky than Longmaster Information. It trades about 0.2 of its potential returns per unit of risk. Longmaster Information Tech is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,124  in Longmaster Information Tech on September 23, 2024 and sell it today you would earn a total of  572.00  from holding Longmaster Information Tech or generate 50.89% return on investment over 90 days.

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

Shenyang Chemical Industry  vs.  Longmaster Information Tech

Shenyang Chemical

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Chemical Industry are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Longmaster Information

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Longmaster Information Tech are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Longmaster Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenyang Chemical and Longmaster Information

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

The idea behind Shenyang Chemical Industry and Longmaster Information 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.