Correlation Between Changchun and Niutech Environment

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

Diversification Opportunities for Changchun and Niutech Environment

0.89

Correlation Coefficient

Changchun  Niutech Environment

Very poor diversification

The 3 months correlation between Changchun and Niutech is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech and Niutech Environment Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Niutech Environment 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 Niutech Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Niutech Environment has no effect on the direction of Changchun i.e., Changchun and Niutech Environment go up and down completely randomly.

Pair Corralation between Changchun and Niutech Environment

Assuming the 90 days trading horizon Changchun UP Optotech is expected to generate 1.13 times more return on investment than Niutech Environment. However, Changchun is 1.13 times more volatile than Niutech Environment Technology. It trades about 0.22 of its potential returns per unit of risk. Niutech Environment Technology is currently generating about 0.2 per unit of risk. If you would invest  2,670  in Changchun UP Optotech on September 14, 2024 and sell it today you would earn a total of  1,624  from holding Changchun UP Optotech or generate 60.82% 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.  Niutech Environment Technology

Changchun UP Optotech

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 17 (%) 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.

Niutech Environment

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Niutech Environment Technology are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Niutech Environment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun and Niutech Environment

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

The idea behind Changchun UP Optotech and Niutech Environment 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.