Correlation Between Changchun and Changsha Jingjia

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

Diversification Opportunities for Changchun and Changsha Jingjia

0.35

Correlation Coefficient

Changchun  Changsha Jingjia

Weak diversification

The 3 months correlation between Changchun and Changsha is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech 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 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 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 Changchun i.e., Changchun and Changsha Jingjia go up and down completely randomly.

Pair Corralation between Changchun and Changsha Jingjia

Assuming the 90 days trading horizon Changchun is expected to generate 1.1 times less return on investment than Changsha Jingjia. But when comparing it to its historical volatility, Changchun UP Optotech is 1.16 times less risky than Changsha Jingjia. It trades about 0.08 of its potential returns per unit of risk. Changsha Jingjia Microelectronics is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,833  in Changsha Jingjia Microelectronics on October 11, 2024 and sell it today you would earn a total of  1,215  from holding Changsha Jingjia Microelectronics or generate 15.51% return on investment over 90 days.

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

Changchun UP Optotech  vs.  Changsha Jingjia Microelectron

Changchun UP Optotech

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 6 (%) 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.

Changsha Jingjia Mic

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Changchun and Changsha Jingjia

The main advantage of trading using opposite Changchun and Changsha Jingjia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Changchun 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 Changchun UP Optotech 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.