Correlation Between Luzhou Lao and Shenzhen SDG

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Can any of the company-specific risk be diversified away by investing in both Luzhou Lao and Shenzhen SDG 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 Luzhou Lao and Shenzhen SDG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Luzhou Lao Jiao and Shenzhen SDG Service, you can compare the effects of market volatilities on Luzhou Lao and Shenzhen SDG 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 Luzhou Lao with a short position of Shenzhen SDG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luzhou Lao and Shenzhen SDG.

Diversification Opportunities for Luzhou Lao and Shenzhen SDG

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Luzhou and Shenzhen is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Luzhou Lao Jiao and Shenzhen SDG Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen SDG Service and Luzhou Lao 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 Luzhou Lao Jiao are associated (or correlated) with Shenzhen SDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen SDG Service has no effect on the direction of Luzhou Lao i.e., Luzhou Lao and Shenzhen SDG go up and down completely randomly.

Pair Corralation between Luzhou Lao and Shenzhen SDG

Assuming the 90 days trading horizon Luzhou Lao Jiao is expected to generate 0.71 times more return on investment than Shenzhen SDG. However, Luzhou Lao Jiao is 1.42 times less risky than Shenzhen SDG. It trades about -0.51 of its potential returns per unit of risk. Shenzhen SDG Service is currently generating about -0.49 per unit of risk. If you would invest  14,130  in Luzhou Lao Jiao on October 12, 2024 and sell it today you would lose (2,537) from holding Luzhou Lao Jiao or give up 17.95% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Luzhou Lao Jiao  vs.  Shenzhen SDG Service

 Performance 
       Timeline  
Luzhou Lao Jiao 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Luzhou Lao Jiao has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
Shenzhen SDG Service 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Shenzhen SDG Service has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Luzhou Lao and Shenzhen SDG Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Luzhou Lao and Shenzhen SDG

The main advantage of trading using opposite Luzhou Lao and Shenzhen SDG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Luzhou Lao position performs unexpectedly, Shenzhen SDG 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 Shenzhen SDG will offset losses from the drop in Shenzhen SDG's long position.
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The idea behind Luzhou Lao Jiao and Shenzhen SDG Service 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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Check out your portfolio center.
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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