Correlation Between Shandong Sanyuan and Lianhe Chemical

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

By analyzing existing cross correlation between Shandong Sanyuan Biotechnology and Lianhe Chemical Technology, you can compare the effects of market volatilities on Shandong Sanyuan and Lianhe Chemical 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 Sanyuan with a short position of Lianhe Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Sanyuan and Lianhe Chemical.

Diversification Opportunities for Shandong Sanyuan and Lianhe Chemical

0.87

Correlation Coefficient

Shandong Sanyuan  Lianhe Chemical

Very poor diversification

The 3 months correlation between Shandong and Lianhe is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Sanyuan Biotechnology and Lianhe Chemical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lianhe Chemical Tech and Shandong Sanyuan 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 Sanyuan Biotechnology are associated (or correlated) with Lianhe Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lianhe Chemical Tech has no effect on the direction of Shandong Sanyuan i.e., Shandong Sanyuan and Lianhe Chemical go up and down completely randomly.

Pair Corralation between Shandong Sanyuan and Lianhe Chemical

Assuming the 90 days trading horizon Shandong Sanyuan Biotechnology is expected to generate 1.07 times more return on investment than Lianhe Chemical. However, Shandong Sanyuan is 1.07 times more volatile than Lianhe Chemical Technology. It trades about 0.05 of its potential returns per unit of risk. Lianhe Chemical Technology is currently generating about 0.03 per unit of risk. If you would invest  2,608  in Shandong Sanyuan Biotechnology on September 27, 2024 and sell it today you would earn a total of  159.00  from holding Shandong Sanyuan Biotechnology or generate 6.1% return on investment over 90 days.

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

Shandong Sanyuan Biotechnology  vs.  Lianhe Chemical Technology

Shandong Sanyuan Bio

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sanyuan Biotechnology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sanyuan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lianhe Chemical Tech

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lianhe Chemical Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lianhe Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shandong Sanyuan and Lianhe Chemical

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

The idea behind Shandong Sanyuan Biotechnology and Lianhe Chemical Technology 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.