Correlation Between China Longyuan and China Baoan

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

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

Diversification Opportunities for China Longyuan and China Baoan

0.94

Correlation Coefficient

China Longyuan  China Baoan

Almost no diversification

The 3 months correlation between China and China is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and China Baoan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Baoan Group and China Longyuan 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 Longyuan Power are associated (or correlated) with China Baoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Baoan Group has no effect on the direction of China Longyuan i.e., China Longyuan and China Baoan go up and down completely randomly.

Pair Corralation between China Longyuan and China Baoan

Assuming the 90 days trading horizon China Longyuan is expected to generate 1.26 times less return on investment than China Baoan. But when comparing it to its historical volatility, China Longyuan Power is 1.2 times less risky than China Baoan. It trades about 0.12 of its potential returns per unit of risk. China Baoan Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  740.00  in China Baoan Group on September 23, 2024 and sell it today you would earn a total of  210.00  from holding China Baoan Group or generate 28.38% return on investment over 90 days.

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

China Longyuan Power  vs.  China Baoan Group

China Longyuan Power

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Longyuan Power are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Longyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

China Baoan Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Baoan Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Baoan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Longyuan and China Baoan

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

The idea behind China Longyuan Power and China Baoan 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 CEOs Directory module to screen CEOs from public companies around the world.