Correlation Between SMA Solar and Longfor Group

Can any of the company-specific risk be diversified away by investing in both SMA Solar and Longfor Group 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 SMA Solar and Longfor Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SMA Solar Technology and Longfor Group Holdings, you can compare the effects of market volatilities on SMA Solar and Longfor Group 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 SMA Solar with a short position of Longfor Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Longfor Group.

Diversification Opportunities for SMA Solar and Longfor Group

0.43

Correlation Coefficient

SMA Solar  Longfor Group

Very weak diversification

The 3 months correlation between SMA and Longfor is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Longfor Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longfor Group Holdings and SMA Solar 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 SMA Solar Technology are associated (or correlated) with Longfor Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longfor Group Holdings has no effect on the direction of SMA Solar i.e., SMA Solar and Longfor Group go up and down completely randomly.

Pair Corralation between SMA Solar and Longfor Group

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the Longfor Group. But the stock apears to be less risky and, when comparing its historical volatility, SMA Solar Technology is 1.72 times less risky than Longfor Group. The stock trades about -0.08 of its potential returns per unit of risk. The Longfor Group Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  148.00  in Longfor Group Holdings on September 27, 2024 and sell it today you would lose (26.00) from holding Longfor Group Holdings or give up 17.57% of portfolio value over 90 days.

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

SMA Solar Technology  vs.  Longfor Group Holdings

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Longfor Group Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Longfor Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Longfor Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SMA Solar and Longfor Group

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

The idea behind SMA Solar Technology and Longfor Group Holdings 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 Global Correlations module to find global opportunities by holding instruments from different markets.