Correlation Between Chongqing Changan and Shaanxi Lighte

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

Diversification Opportunities for Chongqing Changan and Shaanxi Lighte

0.7

Correlation Coefficient

Chongqing Changan  Shaanxi Lighte

Poor diversification

The 3 months correlation between Chongqing and Shaanxi is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Shaanxi Lighte Optoelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Lighte Optoe 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 Shaanxi Lighte. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Lighte Optoe has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Shaanxi Lighte go up and down completely randomly.

Pair Corralation between Chongqing Changan and Shaanxi Lighte

Assuming the 90 days trading horizon Chongqing Changan Automobile is expected to under-perform the Shaanxi Lighte. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Changan Automobile is 1.39 times less risky than Shaanxi Lighte. The stock trades about -0.05 of its potential returns per unit of risk. The Shaanxi Lighte Optoelectronics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,065  in Shaanxi Lighte Optoelectronics on October 26, 2024 and sell it today you would lose (76.00) from holding Shaanxi Lighte Optoelectronics or give up 3.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Chongqing Changan Automobile  vs.  Shaanxi Lighte Optoelectronics

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 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.

Shaanxi Lighte Optoe

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Chongqing Changan Automobile and Shaanxi Lighte Optoelectronics 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.