Correlation Between TongFu Microelectronics and Jiangsu Cai

Can any of the company-specific risk be diversified away by investing in both TongFu Microelectronics and Jiangsu Cai 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 TongFu Microelectronics and Jiangsu Cai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TongFu Microelectronics Co and Jiangsu Cai Qin, you can compare the effects of market volatilities on TongFu Microelectronics and Jiangsu Cai 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 TongFu Microelectronics with a short position of Jiangsu Cai. Check out your portfolio center. Please also check ongoing floating volatility patterns of TongFu Microelectronics and Jiangsu Cai.

Diversification Opportunities for TongFu Microelectronics and Jiangsu Cai

0.7

Correlation Coefficient

TongFu Microelectronics  Jiangsu Cai

Poor diversification

The 3 months correlation between TongFu and Jiangsu is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding TongFu Microelectronics Co and Jiangsu Cai Qin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Cai Qin and TongFu Microelectronics 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 TongFu Microelectronics Co are associated (or correlated) with Jiangsu Cai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Cai Qin has no effect on the direction of TongFu Microelectronics i.e., TongFu Microelectronics and Jiangsu Cai go up and down completely randomly.

Pair Corralation between TongFu Microelectronics and Jiangsu Cai

Assuming the 90 days trading horizon TongFu Microelectronics Co is expected to generate 1.14 times more return on investment than Jiangsu Cai. However, TongFu Microelectronics is 1.14 times more volatile than Jiangsu Cai Qin. It trades about 0.1 of its potential returns per unit of risk. Jiangsu Cai Qin is currently generating about 0.0 per unit of risk. If you would invest  2,329  in TongFu Microelectronics Co on October 24, 2024 and sell it today you would earn a total of  553.00  from holding TongFu Microelectronics Co or generate 23.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

TongFu Microelectronics Co  vs.  Jiangsu Cai Qin

TongFu Microelectronics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TongFu Microelectronics Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TongFu Microelectronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Jiangsu Cai Qin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jiangsu Cai Qin has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jiangsu Cai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TongFu Microelectronics and Jiangsu Cai

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

The idea behind TongFu Microelectronics Co and Jiangsu Cai Qin 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.