Correlation Between Qingdao Choho and Shandong Hongchuang

Can any of the company-specific risk be diversified away by investing in both Qingdao Choho and Shandong Hongchuang 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 Qingdao Choho and Shandong Hongchuang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Qingdao Choho Industrial and Shandong Hongchuang Aluminum, you can compare the effects of market volatilities on Qingdao Choho and Shandong Hongchuang 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 Qingdao Choho with a short position of Shandong Hongchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qingdao Choho and Shandong Hongchuang.

Diversification Opportunities for Qingdao Choho and Shandong Hongchuang

0.82

Correlation Coefficient

Qingdao Choho  Shandong Hongchuang

Very poor diversification

The 3 months correlation between Qingdao and Shandong is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Qingdao Choho Industrial and Shandong Hongchuang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hongchuang and Qingdao Choho 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 Qingdao Choho Industrial are associated (or correlated) with Shandong Hongchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hongchuang has no effect on the direction of Qingdao Choho i.e., Qingdao Choho and Shandong Hongchuang go up and down completely randomly.

Pair Corralation between Qingdao Choho and Shandong Hongchuang

Assuming the 90 days trading horizon Qingdao Choho Industrial is expected to generate 1.57 times more return on investment than Shandong Hongchuang. However, Qingdao Choho is 1.57 times more volatile than Shandong Hongchuang Aluminum. It trades about 0.26 of its potential returns per unit of risk. Shandong Hongchuang Aluminum is currently generating about 0.16 per unit of risk. If you would invest  2,762  in Qingdao Choho Industrial on December 26, 2024 and sell it today you would earn a total of  2,563  from holding Qingdao Choho Industrial or generate 92.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.25%
Values	Daily Returns

Qingdao Choho Industrial  vs.  Shandong Hongchuang Aluminum

Qingdao Choho Industrial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Qingdao Choho Industrial are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Qingdao Choho sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Hongchuang

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Qingdao Choho and Shandong Hongchuang

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

The idea behind Qingdao Choho Industrial and Shandong Hongchuang Aluminum 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.