Correlation Between Liaoning Chengda and Yili Chuanning

Can any of the company-specific risk be diversified away by investing in both Liaoning Chengda and Yili Chuanning 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 Yili Chuanning 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 Yili Chuanning Biotechnology, you can compare the effects of market volatilities on Liaoning Chengda and Yili Chuanning 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 Yili Chuanning. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Chengda and Yili Chuanning.

Diversification Opportunities for Liaoning Chengda and Yili Chuanning

0.93

Correlation Coefficient

Liaoning Chengda  Yili Chuanning

Almost no diversification

The 3 months correlation between Liaoning and Yili is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Yili Chuanning Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yili Chuanning Biote 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 Yili Chuanning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yili Chuanning Biote has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and Yili Chuanning go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Yili Chuanning

Assuming the 90 days trading horizon Liaoning Chengda is expected to generate 1.3 times less return on investment than Yili Chuanning. But when comparing it to its historical volatility, Liaoning Chengda Biotechnology is 1.48 times less risky than Yili Chuanning. It trades about 0.1 of its potential returns per unit of risk. Yili Chuanning Biotechnology is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,111  in Yili Chuanning Biotechnology on September 1, 2024 and sell it today you would earn a total of  210.00  from holding Yili Chuanning Biotechnology or generate 18.9% 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.  Yili Chuanning Biotechnology

Liaoning Chengda Bio

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Chengda Biotechnology are ranked lower than 8 (%) 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.

Yili Chuanning Biote

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yili Chuanning Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yili Chuanning sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liaoning Chengda and Yili Chuanning

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

The idea behind Liaoning Chengda Biotechnology and Yili Chuanning Biotechnology 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.