Correlation Between Lee Chi and China Electric
Can any of the company-specific risk be diversified away by investing in both Lee Chi and China Electric 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 Lee Chi and China Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lee Chi Enterprises and China Electric Manufacturing, you can compare the effects of market volatilities on Lee Chi and China Electric 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 Lee Chi with a short position of China Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lee Chi and China Electric.
Diversification Opportunities for Lee Chi and China Electric
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lee and China is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Lee Chi Enterprises and China Electric Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Electric Manuf and Lee Chi 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 Lee Chi Enterprises are associated (or correlated) with China Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Electric Manuf has no effect on the direction of Lee Chi i.e., Lee Chi and China Electric go up and down completely randomly.
Pair Corralation between Lee Chi and China Electric
Assuming the 90 days trading horizon Lee Chi Enterprises is expected to generate 0.91 times more return on investment than China Electric. However, Lee Chi Enterprises is 1.1 times less risky than China Electric. It trades about -0.15 of its potential returns per unit of risk. China Electric Manufacturing is currently generating about -0.16 per unit of risk. If you would invest 1,350 in Lee Chi Enterprises on November 4, 2024 and sell it today you would lose (40.00) from holding Lee Chi Enterprises or give up 2.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lee Chi Enterprises vs. China Electric Manufacturing
Performance |
| Timeline |
| Lee Chi Enterprises |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| China Electric Manuf |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Lee Chi and China Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lee Chi and China Electric
The main advantage of trading using opposite Lee Chi and China Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lee Chi position performs unexpectedly, China Electric 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 China Electric will offset losses from the drop in China Electric's long position.The idea behind Lee Chi Enterprises and China Electric Manufacturing 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.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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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