Correlation Between Guangdong Shenglu and Lingyuan Iron

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

By analyzing existing cross correlation between Guangdong Shenglu Telecommunication and Lingyuan Iron Steel, you can compare the effects of market volatilities on Guangdong Shenglu and Lingyuan Iron 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 Guangdong Shenglu with a short position of Lingyuan Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Shenglu and Lingyuan Iron.

Diversification Opportunities for Guangdong Shenglu and Lingyuan Iron

0.96

Correlation Coefficient

Guangdong Shenglu  Lingyuan Iron

Almost no diversification

The 3 months correlation between Guangdong and Lingyuan is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Shenglu Telecommunic and Lingyuan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingyuan Iron Steel and Guangdong Shenglu 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 Guangdong Shenglu Telecommunication are associated (or correlated) with Lingyuan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingyuan Iron Steel has no effect on the direction of Guangdong Shenglu i.e., Guangdong Shenglu and Lingyuan Iron go up and down completely randomly.

Pair Corralation between Guangdong Shenglu and Lingyuan Iron

Assuming the 90 days trading horizon Guangdong Shenglu is expected to generate 1.26 times less return on investment than Lingyuan Iron. But when comparing it to its historical volatility, Guangdong Shenglu Telecommunication is 1.03 times less risky than Lingyuan Iron. It trades about 0.18 of its potential returns per unit of risk. Lingyuan Iron Steel is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  140.00  in Lingyuan Iron Steel on September 4, 2024 and sell it today you would earn a total of  70.00  from holding Lingyuan Iron Steel or generate 50.0% return on investment over 90 days.

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

Guangdong Shenglu Telecommunic  vs.  Lingyuan Iron Steel

Guangdong Shenglu

Risk-Adjusted Performance

13 of 100

Good

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

Lingyuan Iron Steel

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Guangdong Shenglu and Lingyuan Iron

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

The idea behind Guangdong Shenglu Telecommunication and Lingyuan Iron Steel 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.