Correlation Between ChengDu Hi and Xiangyang Automobile

Can any of the company-specific risk be diversified away by investing in both ChengDu Hi and Xiangyang Automobile 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 ChengDu Hi and Xiangyang Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ChengDu Hi Tech Development and Xiangyang Automobile Bearing, you can compare the effects of market volatilities on ChengDu Hi and Xiangyang Automobile 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 ChengDu Hi with a short position of Xiangyang Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of ChengDu Hi and Xiangyang Automobile.

Diversification Opportunities for ChengDu Hi and Xiangyang Automobile

0.41

Correlation Coefficient

ChengDu Hi  Xiangyang Automobile

Very weak diversification

The 3 months correlation between ChengDu and Xiangyang is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and Xiangyang Automobile Bearing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiangyang Automobile and ChengDu Hi 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 ChengDu Hi Tech Development are associated (or correlated) with Xiangyang Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiangyang Automobile has no effect on the direction of ChengDu Hi i.e., ChengDu Hi and Xiangyang Automobile go up and down completely randomly.

Pair Corralation between ChengDu Hi and Xiangyang Automobile

Assuming the 90 days trading horizon ChengDu Hi is expected to generate 1.47 times less return on investment than Xiangyang Automobile. But when comparing it to its historical volatility, ChengDu Hi Tech Development is 1.01 times less risky than Xiangyang Automobile. It trades about 0.1 of its potential returns per unit of risk. Xiangyang Automobile Bearing is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  382.00  in Xiangyang Automobile Bearing on September 30, 2024 and sell it today you would earn a total of  326.00  from holding Xiangyang Automobile Bearing or generate 85.34% return on investment over 90 days.

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

ChengDu Hi Tech Development  vs.  Xiangyang Automobile Bearing

ChengDu Hi Tech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ChengDu Hi Tech Development are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ChengDu Hi sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiangyang Automobile

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with ChengDu Hi and Xiangyang Automobile

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

The idea behind ChengDu Hi Tech Development and Xiangyang Automobile Bearing 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.