Correlation Between Changchun High and Chongqing VDL

Can any of the company-specific risk be diversified away by investing in both Changchun High and Chongqing VDL 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 Changchun High and Chongqing VDL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changchun High New and Chongqing VDL Electronics, you can compare the effects of market volatilities on Changchun High and Chongqing VDL 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 Changchun High with a short position of Chongqing VDL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun High and Chongqing VDL.

Diversification Opportunities for Changchun High and Chongqing VDL

0.2

Correlation Coefficient

Changchun High  Chongqing VDL

Modest diversification

The 3 months correlation between Changchun and Chongqing is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Changchun High New and Chongqing VDL Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing VDL Electronics and Changchun High 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 Changchun High New are associated (or correlated) with Chongqing VDL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing VDL Electronics has no effect on the direction of Changchun High i.e., Changchun High and Chongqing VDL go up and down completely randomly.

Pair Corralation between Changchun High and Chongqing VDL

Assuming the 90 days trading horizon Changchun High New is expected to under-perform the Chongqing VDL. But the stock apears to be less risky and, when comparing its historical volatility, Changchun High New is 1.82 times less risky than Chongqing VDL. The stock trades about -0.06 of its potential returns per unit of risk. The Chongqing VDL Electronics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,040  in Chongqing VDL Electronics on October 15, 2024 and sell it today you would earn a total of  800.00  from holding Chongqing VDL Electronics or generate 19.8% return on investment over 90 days.

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

Changchun High New  vs.  Chongqing VDL Electronics

Changchun High New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Changchun High New 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.

Chongqing VDL Electronics

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Changchun High and Chongqing VDL

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

The idea behind Changchun High New and Chongqing VDL Electronics 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.