Correlation Between Changchun and China Baoan

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

By analyzing existing cross correlation between Changchun UP Optotech and China Baoan Group, you can compare the effects of market volatilities on Changchun and China Baoan 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 Changchun with a short position of China Baoan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun and China Baoan.

Diversification Opportunities for Changchun and China Baoan

0.74

Correlation Coefficient

Changchun  China Baoan

Poor diversification

The 3 months correlation between Changchun and China is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech and China Baoan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Baoan Group and Changchun 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 Changchun UP Optotech are associated (or correlated) with China Baoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Baoan Group has no effect on the direction of Changchun i.e., Changchun and China Baoan go up and down completely randomly.

Pair Corralation between Changchun and China Baoan

Assuming the 90 days trading horizon Changchun UP Optotech is expected to under-perform the China Baoan. In addition to that, Changchun is 1.61 times more volatile than China Baoan Group. It trades about -0.5 of its total potential returns per unit of risk. China Baoan Group is currently generating about -0.42 per unit of volatility. If you would invest  989.00  in China Baoan Group on October 5, 2024 and sell it today you would lose (117.00) from holding China Baoan Group or give up 11.83% of portfolio value over 90 days.

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

Changchun UP Optotech  vs.  China Baoan Group

Changchun UP Optotech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Baoan Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Baoan Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Changchun and China Baoan

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

The idea behind Changchun UP Optotech and China Baoan Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.