Correlation Between Sinosteel Luonai and Guotai Junan

Can any of the company-specific risk be diversified away by investing in both Sinosteel Luonai and Guotai Junan 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 Guotai Junan 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 Guotai Junan Securities, you can compare the effects of market volatilities on Sinosteel Luonai and Guotai Junan 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 Guotai Junan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinosteel Luonai and Guotai Junan.

Diversification Opportunities for Sinosteel Luonai and Guotai Junan

0.76

Correlation Coefficient

Sinosteel Luonai  Guotai Junan

Poor diversification

The 3 months correlation between Sinosteel and Guotai is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Sinosteel Luonai Materials and Guotai Junan Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guotai Junan Securities 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 Guotai Junan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guotai Junan Securities has no effect on the direction of Sinosteel Luonai i.e., Sinosteel Luonai and Guotai Junan go up and down completely randomly.

Pair Corralation between Sinosteel Luonai and Guotai Junan

Assuming the 90 days trading horizon Sinosteel Luonai Materials is expected to under-perform the Guotai Junan. In addition to that, Sinosteel Luonai is 1.59 times more volatile than Guotai Junan Securities. It trades about -0.04 of its total potential returns per unit of risk. Guotai Junan Securities is currently generating about 0.06 per unit of volatility. If you would invest  1,316  in Guotai Junan Securities on September 28, 2024 and sell it today you would earn a total of  579.00  from holding Guotai Junan Securities or generate 44.0% return on investment over 90 days.

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

Sinosteel Luonai Materials  vs.  Guotai Junan Securities

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.

Guotai Junan Securities

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guotai Junan Securities are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guotai Junan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sinosteel Luonai and Guotai Junan

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

The idea behind Sinosteel Luonai Materials and Guotai Junan Securities 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.