Correlation Between Changchun and Shandong Homey

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

Diversification Opportunities for Changchun and Shandong Homey

0.72

Correlation Coefficient

Changchun  Shandong Homey

Poor diversification

The 3 months correlation between Changchun and Shandong is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech and Shandong Homey Aquatic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Homey Aquatic 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 Shandong Homey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Homey Aquatic has no effect on the direction of Changchun i.e., Changchun and Shandong Homey go up and down completely randomly.

Pair Corralation between Changchun and Shandong Homey

Assuming the 90 days trading horizon Changchun UP Optotech is expected to generate 1.13 times more return on investment than Shandong Homey. However, Changchun is 1.13 times more volatile than Shandong Homey Aquatic. It trades about 0.04 of its potential returns per unit of risk. Shandong Homey Aquatic is currently generating about 0.0 per unit of risk. If you would invest  2,873  in Changchun UP Optotech on October 6, 2024 and sell it today you would earn a total of  615.00  from holding Changchun UP Optotech or generate 21.41% return on investment over 90 days.

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

Changchun UP Optotech  vs.  Shandong Homey Aquatic

Changchun UP Optotech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Changchun is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Homey Aquatic

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Changchun and Shandong Homey

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

The idea behind Changchun UP Optotech and Shandong Homey Aquatic 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.