Correlation Between Chongqing Changan and NBTM New

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

Diversification Opportunities for Chongqing Changan and NBTM New

0.54

Correlation Coefficient

Chongqing Changan  NBTM New

Very weak diversification

The 3 months correlation between Chongqing and NBTM is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and NBTM New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBTM New Materials 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 NBTM New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBTM New Materials has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and NBTM New go up and down completely randomly.

Pair Corralation between Chongqing Changan and NBTM New

Assuming the 90 days trading horizon Chongqing Changan is expected to generate 1.41 times less return on investment than NBTM New. But when comparing it to its historical volatility, Chongqing Changan Automobile is 1.17 times less risky than NBTM New. It trades about 0.09 of its potential returns per unit of risk. NBTM New Materials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,334  in NBTM New Materials on September 21, 2024 and sell it today you would earn a total of  302.00  from holding NBTM New Materials or generate 22.64% return on investment over 90 days.

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

Chongqing Changan Automobile  vs.  NBTM New Materials

Chongqing Changan

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Changan Automobile are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Changan sustained solid returns over the last few months and may actually be approaching a breakup point.

NBTM New Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NBTM New Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NBTM New sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Changan and NBTM New

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

The idea behind Chongqing Changan Automobile and NBTM New Materials 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.