Correlation Between Changchun and Dongxing Sec

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

Diversification Opportunities for Changchun and Dongxing Sec

0.85

Correlation Coefficient

Changchun  Dongxing Sec

Very poor diversification

The 3 months correlation between Changchun and Dongxing is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech and Dongxing Sec Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongxing Sec 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 Dongxing Sec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongxing Sec has no effect on the direction of Changchun i.e., Changchun and Dongxing Sec go up and down completely randomly.

Pair Corralation between Changchun and Dongxing Sec

Assuming the 90 days trading horizon Changchun UP Optotech is expected to generate 1.63 times more return on investment than Dongxing Sec. However, Changchun is 1.63 times more volatile than Dongxing Sec Co. It trades about 0.04 of its potential returns per unit of risk. Dongxing Sec Co is currently generating about 0.04 per unit of risk. If you would invest  2,506  in Changchun UP Optotech on October 22, 2024 and sell it today you would earn a total of  1,428  from holding Changchun UP Optotech or generate 56.98% return on investment over 90 days.

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

Changchun UP Optotech  vs.  Dongxing Sec Co

Changchun UP Optotech

Risk-Adjusted Performance

3 of 100

Weak

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.

Dongxing Sec

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Changchun and Dongxing Sec

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

The idea behind Changchun UP Optotech and Dongxing Sec Co 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.