Correlation Between China Longyuan and Kansai Electric

Can any of the company-specific risk be diversified away by investing in both China Longyuan and Kansai 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 China Longyuan and Kansai Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Longyuan Power and Kansai Electric Power, you can compare the effects of market volatilities on China Longyuan and Kansai 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 China Longyuan with a short position of Kansai Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Longyuan and Kansai Electric.

Diversification Opportunities for China Longyuan and Kansai Electric

-0.49

Correlation Coefficient

China Longyuan  Kansai Electric

Very good diversification

The 3 months correlation between China and Kansai is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Kansai Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kansai Electric Power and China Longyuan 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 China Longyuan Power are associated (or correlated) with Kansai Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kansai Electric Power has no effect on the direction of China Longyuan i.e., China Longyuan and Kansai Electric go up and down completely randomly.

Pair Corralation between China Longyuan and Kansai Electric

Assuming the 90 days horizon China Longyuan is expected to generate 3.62 times less return on investment than Kansai Electric. In addition to that, China Longyuan is 3.97 times more volatile than Kansai Electric Power. It trades about 0.01 of its total potential returns per unit of risk. Kansai Electric Power is currently generating about 0.15 per unit of volatility. If you would invest  612.00  in Kansai Electric Power on February 2, 2024 and sell it today you would earn a total of  25.00  from holding Kansai Electric Power or generate 4.08% return on investment over 90 days.

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

China Longyuan Power  vs.  Kansai Electric Power

China Longyuan Power

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Longyuan Power are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, China Longyuan showed solid returns over the last few months and may actually be approaching a breakup point.

Kansai Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kansai Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Kansai Electric is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Longyuan and Kansai Electric

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

The idea behind China Longyuan Power and Kansai Electric Power 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.