Correlation Between Shenyang Huitian and Chongqing VDL

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

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

Diversification Opportunities for Shenyang Huitian and Chongqing VDL

0.64

Correlation Coefficient

Shenyang Huitian  Chongqing VDL

Poor diversification

The 3 months correlation between Shenyang and Chongqing is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Huitian Thermal 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 Shenyang Huitian 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 Shenyang Huitian Thermal 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 Shenyang Huitian i.e., Shenyang Huitian and Chongqing VDL go up and down completely randomly.

Pair Corralation between Shenyang Huitian and Chongqing VDL

Assuming the 90 days trading horizon Shenyang Huitian Thermal is expected to under-perform the Chongqing VDL. In addition to that, Shenyang Huitian is 1.0 times more volatile than Chongqing VDL Electronics. It trades about -0.32 of its total potential returns per unit of risk. Chongqing VDL Electronics is currently generating about -0.03 per unit of volatility. If you would invest  5,049  in Chongqing VDL Electronics on October 15, 2024 and sell it today you would lose (209.00) from holding Chongqing VDL Electronics or give up 4.14% of portfolio value over 90 days.

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

Shenyang Huitian Thermal  vs.  Chongqing VDL Electronics

Shenyang Huitian Thermal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Huitian Thermal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Huitian may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Shenyang Huitian and Chongqing VDL

The main advantage of trading using opposite Shenyang Huitian and Chongqing VDL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shenyang Huitian 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 Shenyang Huitian Thermal 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.