Correlation Between Shandong Longquan and Chengdu Spaceon

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

By analyzing existing cross correlation between Shandong Longquan Pipeline and Chengdu Spaceon Electronics, you can compare the effects of market volatilities on Shandong Longquan and Chengdu Spaceon 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 Shandong Longquan with a short position of Chengdu Spaceon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Longquan and Chengdu Spaceon.

Diversification Opportunities for Shandong Longquan and Chengdu Spaceon

0.86

Correlation Coefficient

Shandong Longquan  Chengdu Spaceon

Very poor diversification

The 3 months correlation between Shandong and Chengdu is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longquan Pipeline and Chengdu Spaceon Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Spaceon Elec and Shandong Longquan 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 Shandong Longquan Pipeline are associated (or correlated) with Chengdu Spaceon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Spaceon Elec has no effect on the direction of Shandong Longquan i.e., Shandong Longquan and Chengdu Spaceon go up and down completely randomly.

Pair Corralation between Shandong Longquan and Chengdu Spaceon

Assuming the 90 days trading horizon Shandong Longquan Pipeline is expected to generate 0.98 times more return on investment than Chengdu Spaceon. However, Shandong Longquan Pipeline is 1.02 times less risky than Chengdu Spaceon. It trades about 0.14 of its potential returns per unit of risk. Chengdu Spaceon Electronics is currently generating about 0.13 per unit of risk. If you would invest  362.00  in Shandong Longquan Pipeline on September 25, 2024 and sell it today you would earn a total of  104.00  from holding Shandong Longquan Pipeline or generate 28.73% return on investment over 90 days.

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

Shandong Longquan Pipeline  vs.  Chengdu Spaceon Electronics

Shandong Longquan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Longquan sustained solid returns over the last few months and may actually be approaching a breakup point.

Chengdu Spaceon Elec

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Shandong Longquan and Chengdu Spaceon

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

The idea behind Shandong Longquan Pipeline and Chengdu Spaceon Electronics 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.