Correlation Between Liaoning Dingjide and Union Semiconductor

Can any of the company-specific risk be diversified away by investing in both Liaoning Dingjide and Union Semiconductor 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 Liaoning Dingjide and Union Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liaoning Dingjide Petrochemical and Union Semiconductor Co, you can compare the effects of market volatilities on Liaoning Dingjide and Union Semiconductor 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 Liaoning Dingjide with a short position of Union Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Dingjide and Union Semiconductor.

Diversification Opportunities for Liaoning Dingjide and Union Semiconductor

0.56

Correlation Coefficient

Liaoning Dingjide  Union Semiconductor

Very weak diversification

The 3 months correlation between Liaoning and Union is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Dingjide Petrochemica and Union Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Semiconductor and Liaoning Dingjide 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 Liaoning Dingjide Petrochemical are associated (or correlated) with Union Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Semiconductor has no effect on the direction of Liaoning Dingjide i.e., Liaoning Dingjide and Union Semiconductor go up and down completely randomly.

Pair Corralation between Liaoning Dingjide and Union Semiconductor

Assuming the 90 days trading horizon Liaoning Dingjide is expected to generate 2.35 times less return on investment than Union Semiconductor. But when comparing it to its historical volatility, Liaoning Dingjide Petrochemical is 1.28 times less risky than Union Semiconductor. It trades about 0.04 of its potential returns per unit of risk. Union Semiconductor Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  848.00  in Union Semiconductor Co on September 28, 2024 and sell it today you would earn a total of  100.00  from holding Union Semiconductor Co or generate 11.79% return on investment over 90 days.

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

Liaoning Dingjide Petrochemica  vs.  Union Semiconductor Co

Liaoning Dingjide

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Union Semiconductor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Union Semiconductor Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liaoning Dingjide and Union Semiconductor

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

The idea behind Liaoning Dingjide Petrochemical and Union Semiconductor Co 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 Anywhere module to track or share privately all of your investments from the convenience of any device.