Correlation Between Sichuan Yahua and Caihong Display

Can any of the company-specific risk be diversified away by investing in both Sichuan Yahua and Caihong Display 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 Sichuan Yahua and Caihong Display into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sichuan Yahua Industrial and Caihong Display Devices, you can compare the effects of market volatilities on Sichuan Yahua and Caihong Display 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 Sichuan Yahua with a short position of Caihong Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Yahua and Caihong Display.

Diversification Opportunities for Sichuan Yahua and Caihong Display

0.81

Correlation Coefficient

Sichuan Yahua  Caihong Display

Very poor diversification

The 3 months correlation between Sichuan and Caihong is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Yahua Industrial and Caihong Display Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caihong Display Devices and Sichuan Yahua 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 Sichuan Yahua Industrial are associated (or correlated) with Caihong Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caihong Display Devices has no effect on the direction of Sichuan Yahua i.e., Sichuan Yahua and Caihong Display go up and down completely randomly.

Pair Corralation between Sichuan Yahua and Caihong Display

Assuming the 90 days trading horizon Sichuan Yahua Industrial is expected to generate 1.17 times more return on investment than Caihong Display. However, Sichuan Yahua is 1.17 times more volatile than Caihong Display Devices. It trades about 0.18 of its potential returns per unit of risk. Caihong Display Devices is currently generating about 0.05 per unit of risk. If you would invest  869.00  in Sichuan Yahua Industrial on September 4, 2024 and sell it today you would earn a total of  355.00  from holding Sichuan Yahua Industrial or generate 40.85% return on investment over 90 days.

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

Sichuan Yahua Industrial  vs.  Caihong Display Devices

Sichuan Yahua Industrial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Yahua Industrial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Yahua sustained solid returns over the last few months and may actually be approaching a breakup point.

Caihong Display Devices

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Sichuan Yahua and Caihong Display

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

The idea behind Sichuan Yahua Industrial and Caihong Display Devices 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.