Correlation Between Chongqing Changan and Topsec Technologies

Can any of the company-specific risk be diversified away by investing in both Chongqing Changan and Topsec Technologies 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 Topsec Technologies 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 Topsec Technologies Group, you can compare the effects of market volatilities on Chongqing Changan and Topsec Technologies 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 Topsec Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Changan and Topsec Technologies.

Diversification Opportunities for Chongqing Changan and Topsec Technologies

0.27

Correlation Coefficient

Chongqing Changan  Topsec Technologies

Modest diversification

The 3 months correlation between Chongqing and Topsec is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Topsec Technologies Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topsec Technologies 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 Topsec Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topsec Technologies has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Topsec Technologies go up and down completely randomly.

Pair Corralation between Chongqing Changan and Topsec Technologies

Assuming the 90 days trading horizon Chongqing Changan Automobile is expected to under-perform the Topsec Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Changan Automobile is 2.17 times less risky than Topsec Technologies. The stock trades about -0.01 of its potential returns per unit of risk. The Topsec Technologies Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  681.00  in Topsec Technologies Group on November 28, 2024 and sell it today you would earn a total of  252.00  from holding Topsec Technologies Group or generate 37.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Chongqing Changan Automobile  vs.  Topsec Technologies Group

Chongqing Changan

Risk-Adjusted Performance

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 somewhat strong basic indicators, Chongqing Changan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Topsec Technologies

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Topsec Technologies Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Topsec Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Changan and Topsec Technologies

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

The idea behind Chongqing Changan Automobile and Topsec Technologies Group 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.