Correlation Between China Securities and Tianjin Jingwei

Can any of the company-specific risk be diversified away by investing in both China Securities and Tianjin Jingwei 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 China Securities and Tianjin Jingwei into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Securities 800 and Tianjin Jingwei Electric, you can compare the effects of market volatilities on China Securities and Tianjin Jingwei 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 China Securities with a short position of Tianjin Jingwei. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and Tianjin Jingwei.

Diversification Opportunities for China Securities and Tianjin Jingwei

0.41

Correlation Coefficient

China Securities  Tianjin Jingwei

Very weak diversification

The 3 months correlation between China and Tianjin is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Tianjin Jingwei Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Jingwei Electric and China Securities 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 China Securities 800 are associated (or correlated) with Tianjin Jingwei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Jingwei Electric has no effect on the direction of China Securities i.e., China Securities and Tianjin Jingwei go up and down completely randomly.

Pair Corralation between China Securities and Tianjin Jingwei

Assuming the 90 days trading horizon China Securities is expected to generate 4.48 times less return on investment than Tianjin Jingwei. But when comparing it to its historical volatility, China Securities 800 is 4.13 times less risky than Tianjin Jingwei. It trades about 0.04 of its potential returns per unit of risk. Tianjin Jingwei Electric is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  683.00  in Tianjin Jingwei Electric on October 9, 2024 and sell it today you would earn a total of  157.00  from holding Tianjin Jingwei Electric or generate 22.99% return on investment over 90 days.

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

China Securities 800  vs.  Tianjin Jingwei Electric

Pair Trading with China Securities and Tianjin Jingwei

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

The idea behind China Securities 800 and Tianjin Jingwei Electric 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.