Correlation Between China Longyuan and TCL Zhonghuan

Can any of the company-specific risk be diversified away by investing in both China Longyuan and TCL Zhonghuan 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 TCL Zhonghuan 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 TCL Zhonghuan Renewable, you can compare the effects of market volatilities on China Longyuan and TCL Zhonghuan 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 TCL Zhonghuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Longyuan and TCL Zhonghuan.

Diversification Opportunities for China Longyuan and TCL Zhonghuan

0.95

Correlation Coefficient

China Longyuan  TCL Zhonghuan

Almost no diversification

The 3 months correlation between China and TCL is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and TCL Zhonghuan Renewable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCL Zhonghuan Renewable 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 TCL Zhonghuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCL Zhonghuan Renewable has no effect on the direction of China Longyuan i.e., China Longyuan and TCL Zhonghuan go up and down completely randomly.

Pair Corralation between China Longyuan and TCL Zhonghuan

Assuming the 90 days trading horizon China Longyuan is expected to generate 1.28 times less return on investment than TCL Zhonghuan. But when comparing it to its historical volatility, China Longyuan Power is 1.4 times less risky than TCL Zhonghuan. It trades about 0.15 of its potential returns per unit of risk. TCL Zhonghuan Renewable is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  759.00  in TCL Zhonghuan Renewable on September 14, 2024 and sell it today you would earn a total of  245.00  from holding TCL Zhonghuan Renewable or generate 32.28% 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.  TCL Zhonghuan Renewable

China Longyuan Power

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Longyuan Power are ranked lower than 11 (%) 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.

TCL Zhonghuan Renewable

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with China Longyuan and TCL Zhonghuan

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

The idea behind China Longyuan Power and TCL Zhonghuan Renewable 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 Anywhere module to track or share privately all of your investments from the convenience of any device.