Correlation Between Chongqing Changan and Industrial

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

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

Diversification Opportunities for Chongqing Changan and Industrial

0.24

Correlation Coefficient

Chongqing Changan  Industrial

Modest diversification

The 3 months correlation between Chongqing and Industrial is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial and Chongqing Changan 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 Chongqing Changan Automobile are associated (or correlated) with Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Industrial go up and down completely randomly.

Pair Corralation between Chongqing Changan and Industrial

Assuming the 90 days trading horizon Chongqing Changan is expected to generate 42.0 times less return on investment than Industrial. But when comparing it to its historical volatility, Chongqing Changan Automobile is 1.31 times less risky than Industrial. It trades about 0.0 of its potential returns per unit of risk. Industrial and Commercial is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  613.00  in Industrial and Commercial on December 2, 2024 and sell it today you would earn a total of  74.00  from holding Industrial and Commercial or generate 12.07% return on investment over 90 days.

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

Chongqing Changan Automobile  vs.  Industrial and Commercial

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.

Industrial and Commercial

Risk-Adjusted Performance

Good

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

Pair Trading with Chongqing Changan and Industrial

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

The idea behind Chongqing Changan Automobile and Industrial and Commercial 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..