Correlation Between Liaoning Chengda and Cofoe Medical

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

By analyzing existing cross correlation between Liaoning Chengda Biotechnology and Cofoe Medical Technology, you can compare the effects of market volatilities on Liaoning Chengda and Cofoe Medical 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 Chengda with a short position of Cofoe Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Chengda and Cofoe Medical.

Diversification Opportunities for Liaoning Chengda and Cofoe Medical

0.98

Correlation Coefficient

Liaoning Chengda  Cofoe Medical

Almost no diversification

The 3 months correlation between Liaoning and Cofoe is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Cofoe Medical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cofoe Medical Technology and Liaoning Chengda 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 Chengda Biotechnology are associated (or correlated) with Cofoe Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cofoe Medical Technology has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and Cofoe Medical go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Cofoe Medical

Assuming the 90 days trading horizon Liaoning Chengda is expected to generate 1.53 times less return on investment than Cofoe Medical. But when comparing it to its historical volatility, Liaoning Chengda Biotechnology is 1.14 times less risky than Cofoe Medical. It trades about 0.08 of its potential returns per unit of risk. Cofoe Medical Technology is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,094  in Cofoe Medical Technology on September 25, 2024 and sell it today you would earn a total of  602.00  from holding Cofoe Medical Technology or generate 19.46% return on investment over 90 days.

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

Liaoning Chengda Biotechnology  vs.  Cofoe Medical Technology

Liaoning Chengda Bio

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Chengda Biotechnology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Chengda sustained solid returns over the last few months and may actually be approaching a breakup point.

Cofoe Medical Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cofoe Medical Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cofoe Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liaoning Chengda and Cofoe Medical

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

The idea behind Liaoning Chengda Biotechnology and Cofoe Medical 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.