Correlation Between Sinosteel Luonai and Huagong Tech

Can any of the company-specific risk be diversified away by investing in both Sinosteel Luonai and Huagong Tech 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 Sinosteel Luonai and Huagong Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sinosteel Luonai Materials and Huagong Tech Co, you can compare the effects of market volatilities on Sinosteel Luonai and Huagong Tech 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 Sinosteel Luonai with a short position of Huagong Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinosteel Luonai and Huagong Tech.

Diversification Opportunities for Sinosteel Luonai and Huagong Tech

0.83

Correlation Coefficient

Sinosteel Luonai  Huagong Tech

Very poor diversification

The 3 months correlation between Sinosteel and Huagong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sinosteel Luonai Materials and Huagong Tech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huagong Tech and Sinosteel Luonai 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 Sinosteel Luonai Materials are associated (or correlated) with Huagong Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huagong Tech has no effect on the direction of Sinosteel Luonai i.e., Sinosteel Luonai and Huagong Tech go up and down completely randomly.

Pair Corralation between Sinosteel Luonai and Huagong Tech

Assuming the 90 days trading horizon Sinosteel Luonai Materials is expected to under-perform the Huagong Tech. But the stock apears to be less risky and, when comparing its historical volatility, Sinosteel Luonai Materials is 1.5 times less risky than Huagong Tech. The stock trades about -0.07 of its potential returns per unit of risk. The Huagong Tech Co is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  3,579  in Huagong Tech Co on September 28, 2024 and sell it today you would earn a total of  736.00  from holding Huagong Tech Co or generate 20.56% return on investment over 90 days.

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

Sinosteel Luonai Materials  vs.  Huagong Tech Co

Sinosteel Luonai Mat

Risk-Adjusted Performance

2 of 100

Weak

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

Huagong Tech

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Sinosteel Luonai and Huagong Tech

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

The idea behind Sinosteel Luonai Materials and Huagong Tech 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.