Correlation Between China Securities and Chongqing Sulian

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

Diversification Opportunities for China Securities and Chongqing Sulian

0.5

Correlation Coefficient

China Securities  Chongqing Sulian

Very weak diversification

The 3 months correlation between China and Chongqing is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Chongqing Sulian Plastic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Sulian Plastic 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 Chongqing Sulian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Sulian Plastic has no effect on the direction of China Securities i.e., China Securities and Chongqing Sulian go up and down completely randomly.

Pair Corralation between China Securities and Chongqing Sulian

Assuming the 90 days trading horizon China Securities 800 is expected to under-perform the Chongqing Sulian. But the index apears to be less risky and, when comparing its historical volatility, China Securities 800 is 4.84 times less risky than Chongqing Sulian. The index trades about -0.01 of its potential returns per unit of risk. The Chongqing Sulian Plastic is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,810  in Chongqing Sulian Plastic on December 4, 2024 and sell it today you would earn a total of  980.00  from holding Chongqing Sulian Plastic or generate 34.88% 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.  Chongqing Sulian Plastic

Pair Trading with China Securities and Chongqing Sulian

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

The idea behind China Securities 800 and Chongqing Sulian Plastic 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.