Correlation Between Weichai Heavy and Chongqing Rural

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

By analyzing existing cross correlation between Weichai Heavy Machinery and Chongqing Rural Commercial, you can compare the effects of market volatilities on Weichai Heavy and Chongqing Rural 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 Weichai Heavy with a short position of Chongqing Rural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weichai Heavy and Chongqing Rural.

Diversification Opportunities for Weichai Heavy and Chongqing Rural

0.63

Correlation Coefficient

Weichai Heavy  Chongqing Rural

Poor diversification

The 3 months correlation between Weichai and Chongqing is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Heavy Machinery and Chongqing Rural Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Rural Comm and Weichai Heavy 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 Weichai Heavy Machinery are associated (or correlated) with Chongqing Rural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Rural Comm has no effect on the direction of Weichai Heavy i.e., Weichai Heavy and Chongqing Rural go up and down completely randomly.

Pair Corralation between Weichai Heavy and Chongqing Rural

Assuming the 90 days trading horizon Weichai Heavy Machinery is expected to generate 3.73 times more return on investment than Chongqing Rural. However, Weichai Heavy is 3.73 times more volatile than Chongqing Rural Commercial. It trades about 0.4 of its potential returns per unit of risk. Chongqing Rural Commercial is currently generating about 0.11 per unit of risk. If you would invest  1,440  in Weichai Heavy Machinery on October 24, 2024 and sell it today you would earn a total of  815.00  from holding Weichai Heavy Machinery or generate 56.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Weichai Heavy Machinery  vs.  Chongqing Rural Commercial

Weichai Heavy Machinery

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weichai Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Chongqing Rural Comm

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Rural Commercial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Chongqing Rural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Weichai Heavy and Chongqing Rural

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

The idea behind Weichai Heavy Machinery and Chongqing Rural Commercial 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.