Correlation Between Chongqing Changan and Xiamen Jiarong

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

Diversification Opportunities for Chongqing Changan and Xiamen Jiarong

0.6

Correlation Coefficient

Chongqing Changan  Xiamen Jiarong

Poor diversification

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

Pair Corralation between Chongqing Changan and Xiamen Jiarong

Assuming the 90 days trading horizon Chongqing Changan Automobile is expected to under-perform the Xiamen Jiarong. In addition to that, Chongqing Changan is 1.02 times more volatile than Xiamen Jiarong Technology. It trades about -0.08 of its total potential returns per unit of risk. Xiamen Jiarong Technology is currently generating about 0.03 per unit of volatility. If you would invest  1,873  in Xiamen Jiarong Technology on December 26, 2024 and sell it today you would earn a total of  40.00  from holding Xiamen Jiarong Technology or generate 2.14% return on investment over 90 days.

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

Chongqing Changan Automobile  vs.  Xiamen Jiarong Technology

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Xiamen Jiarong Technology

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Jiarong Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiamen Jiarong 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 Xiamen Jiarong

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

The idea behind Chongqing Changan Automobile and Xiamen Jiarong Technology 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.