Correlation Between China Mobile and Lingsen Precision

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

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

Diversification Opportunities for China Mobile and Lingsen Precision

0.06

Correlation Coefficient

China Mobile  Lingsen Precision

Significant diversification

The 3 months correlation between China and Lingsen is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding China Mobile and Lingsen Precision Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingsen Precision and China Mobile 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 Mobile are associated (or correlated) with Lingsen Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingsen Precision has no effect on the direction of China Mobile i.e., China Mobile and Lingsen Precision go up and down completely randomly.

Pair Corralation between China Mobile and Lingsen Precision

Assuming the 90 days trading horizon China Mobile is expected to generate 0.59 times more return on investment than Lingsen Precision. However, China Mobile is 1.7 times less risky than Lingsen Precision. It trades about -0.03 of its potential returns per unit of risk. Lingsen Precision Industries is currently generating about -0.02 per unit of risk. If you would invest  1,535  in China Mobile on September 13, 2024 and sell it today you would lose (166.00) from holding China Mobile or give up 10.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	77.37%
Values	Daily Returns

China Mobile  vs.  Lingsen Precision Industries

China Mobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Mobile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, China Mobile is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Lingsen Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lingsen Precision Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lingsen Precision is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Mobile and Lingsen Precision

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

The idea behind China Mobile and Lingsen Precision Industries 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.