Correlation Between Changchun and YiDong Electronics

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

Diversification Opportunities for Changchun and YiDong Electronics

0.82

Correlation Coefficient

Changchun  YiDong Electronics

Very poor diversification

The 3 months correlation between Changchun and YiDong is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech and YiDong Electronics Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YiDong Electronics 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 YiDong Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YiDong Electronics has no effect on the direction of Changchun i.e., Changchun and YiDong Electronics go up and down completely randomly.

Pair Corralation between Changchun and YiDong Electronics

Assuming the 90 days trading horizon Changchun UP Optotech is expected to generate 1.04 times more return on investment than YiDong Electronics. However, Changchun is 1.04 times more volatile than YiDong Electronics Technology. It trades about 0.25 of its potential returns per unit of risk. YiDong Electronics Technology is currently generating about 0.17 per unit of risk. If you would invest  2,427  in Changchun UP Optotech on September 13, 2024 and sell it today you would earn a total of  1,867  from holding Changchun UP Optotech or generate 76.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Changchun UP Optotech  vs.  YiDong Electronics Technology

Changchun UP Optotech

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 19 (%) 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.

YiDong Electronics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in YiDong Electronics Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, YiDong Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun and YiDong Electronics

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

The idea behind Changchun UP Optotech and YiDong Electronics Technology 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.