Correlation Between Beijing Roborock and Henan Lantian

Can any of the company-specific risk be diversified away by investing in both Beijing Roborock and Henan Lantian 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 Beijing Roborock and Henan Lantian into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Beijing Roborock Technology and Henan Lantian Gas, you can compare the effects of market volatilities on Beijing Roborock and Henan Lantian 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 Beijing Roborock with a short position of Henan Lantian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Roborock and Henan Lantian.

Diversification Opportunities for Beijing Roborock and Henan Lantian

0.71

Correlation Coefficient

Beijing Roborock  Henan Lantian

Poor diversification

The 3 months correlation between Beijing and Henan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Roborock Technology and Henan Lantian Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Lantian Gas and Beijing Roborock 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 Beijing Roborock Technology are associated (or correlated) with Henan Lantian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Lantian Gas has no effect on the direction of Beijing Roborock i.e., Beijing Roborock and Henan Lantian go up and down completely randomly.

Pair Corralation between Beijing Roborock and Henan Lantian

Assuming the 90 days trading horizon Beijing Roborock Technology is expected to under-perform the Henan Lantian. In addition to that, Beijing Roborock is 1.76 times more volatile than Henan Lantian Gas. It trades about -0.2 of its total potential returns per unit of risk. Henan Lantian Gas is currently generating about -0.11 per unit of volatility. If you would invest  1,230  in Henan Lantian Gas on September 26, 2024 and sell it today you would lose (102.00) from holding Henan Lantian Gas or give up 8.29% of portfolio value over 90 days.

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

Beijing Roborock Technology  vs.  Henan Lantian Gas

Beijing Roborock Tec

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Beijing Roborock Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beijing Roborock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Henan Lantian Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Henan Lantian Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Beijing Roborock and Henan Lantian

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

The idea behind Beijing Roborock Technology and Henan Lantian Gas 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.