Correlation Between China Securities and Changsha Jingjia

Can any of the company-specific risk be diversified away by investing in both China Securities and Changsha Jingjia 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 Changsha Jingjia 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 Changsha Jingjia Microelectronics, you can compare the effects of market volatilities on China Securities and Changsha Jingjia 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 Changsha Jingjia. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and Changsha Jingjia.

Diversification Opportunities for China Securities and Changsha Jingjia

0.94

Correlation Coefficient

China Securities  Changsha Jingjia

Almost no diversification

The 3 months correlation between China and Changsha is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Changsha Jingjia Microelectron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changsha Jingjia Mic 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 Changsha Jingjia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changsha Jingjia Mic has no effect on the direction of China Securities i.e., China Securities and Changsha Jingjia go up and down completely randomly.

Pair Corralation between China Securities and Changsha Jingjia

Assuming the 90 days trading horizon China Securities is expected to generate 8.74 times less return on investment than Changsha Jingjia. But when comparing it to its historical volatility, China Securities 800 is 5.06 times less risky than Changsha Jingjia. It trades about 0.13 of its potential returns per unit of risk. Changsha Jingjia Microelectronics is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  8,225  in Changsha Jingjia Microelectronics on September 24, 2024 and sell it today you would earn a total of  1,722  from holding Changsha Jingjia Microelectronics or generate 20.94% return on investment over 90 days.

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

China Securities 800  vs.  Changsha Jingjia Microelectron

Pair Trading with China Securities and Changsha Jingjia

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

The idea behind China Securities 800 and Changsha Jingjia Microelectronics 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.