Correlation Between Western Securities and Chengdu B

Can any of the company-specific risk be diversified away by investing in both Western Securities and Chengdu B 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 Western Securities and Chengdu B into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Securities Co and Chengdu B ray Media, you can compare the effects of market volatilities on Western Securities and Chengdu B 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 Western Securities with a short position of Chengdu B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Securities and Chengdu B.

Diversification Opportunities for Western Securities and Chengdu B

0.69

Correlation Coefficient

Western Securities  Chengdu B

Poor diversification

The 3 months correlation between Western and Chengdu is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Western Securities Co and Chengdu B ray Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu B ray and Western Securities 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 Western Securities Co are associated (or correlated) with Chengdu B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu B ray has no effect on the direction of Western Securities i.e., Western Securities and Chengdu B go up and down completely randomly.

Pair Corralation between Western Securities and Chengdu B

Assuming the 90 days trading horizon Western Securities Co is expected to under-perform the Chengdu B. But the stock apears to be less risky and, when comparing its historical volatility, Western Securities Co is 2.12 times less risky than Chengdu B. The stock trades about -0.09 of its potential returns per unit of risk. The Chengdu B ray Media is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  516.00  in Chengdu B ray Media on December 7, 2024 and sell it today you would lose (13.00) from holding Chengdu B ray Media or give up 2.52% of portfolio value over 90 days.

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

Western Securities Co  vs.  Chengdu B ray Media

Western Securities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Securities Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Chengdu B ray

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Western Securities and Chengdu B

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

The idea behind Western Securities Co and Chengdu B ray Media 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.