Correlation Between China Longyuan and Tianjin Capital

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

Diversification Opportunities for China Longyuan and Tianjin Capital

0.92

Correlation Coefficient

China Longyuan  Tianjin Capital

Almost no diversification

The 3 months correlation between China and Tianjin is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi 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 Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of China Longyuan i.e., China Longyuan and Tianjin Capital go up and down completely randomly.

Pair Corralation between China Longyuan and Tianjin Capital

Assuming the 90 days trading horizon China Longyuan is expected to generate 1.09 times less return on investment than Tianjin Capital. In addition to that, China Longyuan is 1.35 times more volatile than Tianjin Capital Environmental. It trades about 0.15 of its total potential returns per unit of risk. Tianjin Capital Environmental is currently generating about 0.22 per unit of volatility. If you would invest  479.00  in Tianjin Capital Environmental on September 14, 2024 and sell it today you would earn a total of  146.00  from holding Tianjin Capital Environmental or generate 30.48% 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.  Tianjin Capital Environmental

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.

Tianjin Capital Envi

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Longyuan and Tianjin Capital

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

The idea behind China Longyuan Power and Tianjin Capital Environmental 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.