Correlation Between Chongqing Changan and Jiangsu Jinling

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

Diversification Opportunities for Chongqing Changan and Jiangsu Jinling

0.6

Correlation Coefficient

Chongqing Changan  Jiangsu Jinling

Poor diversification

The 3 months correlation between Chongqing and Jiangsu is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Jiangsu Jinling Sports in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Jinling Sports 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 Jiangsu Jinling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Jinling Sports has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Jiangsu Jinling go up and down completely randomly.

Pair Corralation between Chongqing Changan and Jiangsu Jinling

Assuming the 90 days trading horizon Chongqing Changan Automobile is expected to under-perform the Jiangsu Jinling. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Changan Automobile is 1.47 times less risky than Jiangsu Jinling. The stock trades about -0.04 of its potential returns per unit of risk. The Jiangsu Jinling Sports is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,361  in Jiangsu Jinling Sports on October 25, 2024 and sell it today you would lose (99.00) from holding Jiangsu Jinling Sports or give up 7.27% 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.  Jiangsu Jinling Sports

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.

Jiangsu Jinling Sports

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jiangsu Jinling Sports has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jiangsu Jinling 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 Jiangsu Jinling

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

The idea behind Chongqing Changan Automobile and Jiangsu Jinling Sports 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.