Correlation Between Chongqing Changan and Central Plains

Can any of the company-specific risk be diversified away by investing in both Chongqing Changan and Central Plains 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 Chongqing Changan and Central Plains into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chongqing Changan Automobile and Central Plains Environment, you can compare the effects of market volatilities on Chongqing Changan and Central Plains 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 Chongqing Changan with a short position of Central Plains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Changan and Central Plains.

Diversification Opportunities for Chongqing Changan and Central Plains

0.69

Correlation Coefficient

Chongqing Changan  Central Plains

Poor diversification

The 3 months correlation between Chongqing and Central is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Central Plains Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Plains Envir and Chongqing Changan 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 Chongqing Changan Automobile are associated (or correlated) with Central Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Plains Envir has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Central Plains go up and down completely randomly.

Pair Corralation between Chongqing Changan and Central Plains

Assuming the 90 days trading horizon Chongqing Changan Automobile is expected to under-perform the Central Plains. In addition to that, Chongqing Changan is 1.25 times more volatile than Central Plains Environment. It trades about -0.09 of its total potential returns per unit of risk. Central Plains Environment is currently generating about -0.03 per unit of volatility. If you would invest  883.00  in Central Plains Environment on October 7, 2024 and sell it today you would lose (50.00) from holding Central Plains Environment or give up 5.66% of portfolio value over 90 days.

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

Chongqing Changan Automobile  vs.  Central Plains Environment

Chongqing Changan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chongqing Changan Automobile 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.

Central Plains Envir

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Plains Environment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Plains is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chongqing Changan and Central Plains

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

The idea behind Chongqing Changan Automobile and Central Plains Environment 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.