Correlation Between Changchun and Xiamen Jihong

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

Diversification Opportunities for Changchun and Xiamen Jihong

0.7

Correlation Coefficient

Changchun  Xiamen Jihong

Poor diversification

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

Pair Corralation between Changchun and Xiamen Jihong

Assuming the 90 days trading horizon Changchun UP Optotech is expected to generate 0.68 times more return on investment than Xiamen Jihong. However, Changchun UP Optotech is 1.47 times less risky than Xiamen Jihong. It trades about -0.31 of its potential returns per unit of risk. Xiamen Jihong Package is currently generating about -0.32 per unit of risk. If you would invest  4,284  in Changchun UP Optotech on October 11, 2024 and sell it today you would lose (649.00) from holding Changchun UP Optotech or give up 15.15% 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.  Xiamen Jihong Package

Changchun UP Optotech

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiamen Jihong Package

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Jihong Package are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen Jihong may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Changchun and Xiamen Jihong

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

The idea behind Changchun UP Optotech and Xiamen Jihong Package 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.