Correlation Between Bomin Electronics and LianChuang Electronic

Can any of the company-specific risk be diversified away by investing in both Bomin Electronics and LianChuang Electronic 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 Bomin Electronics and LianChuang Electronic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bomin Electronics Co and LianChuang Electronic Technology, you can compare the effects of market volatilities on Bomin Electronics and LianChuang Electronic 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 Bomin Electronics with a short position of LianChuang Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bomin Electronics and LianChuang Electronic.

Diversification Opportunities for Bomin Electronics and LianChuang Electronic

0.9

Correlation Coefficient

Bomin Electronics  LianChuang Electronic

Almost no diversification

The 3 months correlation between Bomin and LianChuang is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Bomin Electronics Co and LianChuang Electronic Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LianChuang Electronic and Bomin Electronics 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 Bomin Electronics Co are associated (or correlated) with LianChuang Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LianChuang Electronic has no effect on the direction of Bomin Electronics i.e., Bomin Electronics and LianChuang Electronic go up and down completely randomly.

Pair Corralation between Bomin Electronics and LianChuang Electronic

Assuming the 90 days trading horizon Bomin Electronics Co is expected to generate 0.68 times more return on investment than LianChuang Electronic. However, Bomin Electronics Co is 1.48 times less risky than LianChuang Electronic. It trades about 0.14 of its potential returns per unit of risk. LianChuang Electronic Technology is currently generating about 0.03 per unit of risk. If you would invest  864.00  in Bomin Electronics Co on September 28, 2024 and sell it today you would earn a total of  55.00  from holding Bomin Electronics Co or generate 6.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Bomin Electronics Co  vs.  LianChuang Electronic Technolo

Bomin Electronics

Risk-Adjusted Performance

5 of 100

Modest

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

LianChuang Electronic

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LianChuang Electronic Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LianChuang Electronic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bomin Electronics and LianChuang Electronic

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

The idea behind Bomin Electronics Co and LianChuang Electronic 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.