Correlation Between Mengtian Home and Luolai Home

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

Diversification Opportunities for Mengtian Home and Luolai Home

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Mengtian and Luolai is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Mengtian Home Group and Luolai Home Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luolai Home Textile and Mengtian Home 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 Mengtian Home Group are associated (or correlated) with Luolai Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luolai Home Textile has no effect on the direction of Mengtian Home i.e., Mengtian Home and Luolai Home go up and down completely randomly.

Pair Corralation between Mengtian Home and Luolai Home

Assuming the 90 days trading horizon Mengtian Home Group is expected to generate 0.9 times more return on investment than Luolai Home. However, Mengtian Home Group is 1.11 times less risky than Luolai Home. It trades about 0.09 of its potential returns per unit of risk. Luolai Home Textile is currently generating about 0.04 per unit of risk. If you would invest  915.00  in Mengtian Home Group on September 3, 2024 and sell it today you would earn a total of  181.00  from holding Mengtian Home Group or generate 19.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Mengtian Home Group  vs.  Luolai Home Textile

 Performance 
       Timeline  
Mengtian Home Group 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mengtian Home sustained solid returns over the last few months and may actually be approaching a breakup point.
Luolai Home Textile 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Luolai Home Textile are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Luolai Home sustained solid returns over the last few months and may actually be approaching a breakup point.

Mengtian Home and Luolai Home Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mengtian Home and Luolai Home

The main advantage of trading using opposite Mengtian Home and Luolai Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mengtian Home position performs unexpectedly, Luolai Home 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 Luolai Home will offset losses from the drop in Luolai Home's long position.
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The idea behind Mengtian Home Group and Luolai Home Textile 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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