Correlation Between Chongqing Changan and Anhui Jinhe

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

Diversification Opportunities for Chongqing Changan and Anhui Jinhe

0.73

Correlation Coefficient

Chongqing Changan  Anhui Jinhe

Poor diversification

The 3 months correlation between Chongqing and Anhui is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Anhui Jinhe Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Jinhe Industrial 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 Anhui Jinhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Jinhe Industrial has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Anhui Jinhe go up and down completely randomly.

Pair Corralation between Chongqing Changan and Anhui Jinhe

Assuming the 90 days trading horizon Chongqing Changan Automobile is expected to under-perform the Anhui Jinhe. In addition to that, Chongqing Changan is 1.43 times more volatile than Anhui Jinhe Industrial. It trades about -0.09 of its total potential returns per unit of risk. Anhui Jinhe Industrial is currently generating about -0.1 per unit of volatility. If you would invest  2,500  in Anhui Jinhe Industrial on October 9, 2024 and sell it today you would lose (180.00) from holding Anhui Jinhe Industrial or give up 7.2% 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.  Anhui Jinhe Industrial

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 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.

Anhui Jinhe Industrial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jinhe Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Anhui Jinhe 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 Anhui Jinhe

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

The idea behind Chongqing Changan Automobile and Anhui Jinhe Industrial 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.