Correlation Between Songz Automobile and Chongqing Changan

Can any of the company-specific risk be diversified away by investing in both Songz Automobile and Chongqing Changan 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 Songz Automobile and Chongqing Changan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Songz Automobile Air and Chongqing Changan Automobile, you can compare the effects of market volatilities on Songz Automobile and Chongqing Changan 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 Songz Automobile with a short position of Chongqing Changan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Songz Automobile and Chongqing Changan.

Diversification Opportunities for Songz Automobile and Chongqing Changan

0.66

Correlation Coefficient

Songz Automobile  Chongqing Changan

Poor diversification

The 3 months correlation between Songz and Chongqing is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Songz Automobile Air and Chongqing Changan Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Changan and Songz Automobile 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 Songz Automobile Air are associated (or correlated) with Chongqing Changan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Changan has no effect on the direction of Songz Automobile i.e., Songz Automobile and Chongqing Changan go up and down completely randomly.

Pair Corralation between Songz Automobile and Chongqing Changan

Assuming the 90 days trading horizon Songz Automobile Air is expected to generate 1.14 times more return on investment than Chongqing Changan. However, Songz Automobile is 1.14 times more volatile than Chongqing Changan Automobile. It trades about -0.02 of its potential returns per unit of risk. Chongqing Changan Automobile is currently generating about -0.06 per unit of risk. If you would invest  717.00  in Songz Automobile Air on December 5, 2024 and sell it today you would lose (20.00) from holding Songz Automobile Air or give up 2.79% of portfolio value over 90 days.

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

Songz Automobile Air  vs.  Chongqing Changan Automobile

Songz Automobile Air

Risk-Adjusted Performance

Very Weak

Over the last 90 days Songz Automobile Air has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Songz Automobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chongqing Changan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chongqing Changan Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Chongqing Changan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Songz Automobile and Chongqing Changan

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

The idea behind Songz Automobile Air and Chongqing Changan Automobile 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.