Correlation Between Chongqing Changan and Huaibei Mining

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

Diversification Opportunities for Chongqing Changan and Huaibei Mining

0.19

Correlation Coefficient

Chongqing Changan  Huaibei Mining

Average diversification

The 3 months correlation between Chongqing and Huaibei is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Huaibei Mining Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaibei Mining Holdings 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 Huaibei Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaibei Mining Holdings has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Huaibei Mining go up and down completely randomly.

Pair Corralation between Chongqing Changan and Huaibei Mining

Assuming the 90 days trading horizon Chongqing Changan Automobile is expected to generate 1.2 times more return on investment than Huaibei Mining. However, Chongqing Changan is 1.2 times more volatile than Huaibei Mining Holdings. It trades about 0.05 of its potential returns per unit of risk. Huaibei Mining Holdings is currently generating about -0.19 per unit of risk. If you would invest  1,390  in Chongqing Changan Automobile on September 26, 2024 and sell it today you would earn a total of  19.00  from holding Chongqing Changan Automobile or generate 1.37% return on investment over 90 days.

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

Chongqing Changan Automobile  vs.  Huaibei Mining Holdings

Chongqing Changan

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Changan Automobile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Changan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Huaibei Mining Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaibei Mining Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Chongqing Changan and Huaibei Mining

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

The idea behind Chongqing Changan Automobile and Huaibei Mining Holdings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.