Correlation Between China Development and Chumpower Machinery

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

By analyzing existing cross correlation between China Development Financial and Chumpower Machinery Corp, you can compare the effects of market volatilities on China Development and Chumpower Machinery 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 China Development with a short position of Chumpower Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Chumpower Machinery.

Diversification Opportunities for China Development and Chumpower Machinery

-0.4

Correlation Coefficient

China Development  Chumpower Machinery

Very good diversification

The 3 months correlation between China and Chumpower is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Chumpower Machinery Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chumpower Machinery Corp and China Development 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 China Development Financial are associated (or correlated) with Chumpower Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chumpower Machinery Corp has no effect on the direction of China Development i.e., China Development and Chumpower Machinery go up and down completely randomly.

Pair Corralation between China Development and Chumpower Machinery

Assuming the 90 days trading horizon China Development Financial is expected to under-perform the Chumpower Machinery. In addition to that, China Development is 1.04 times more volatile than Chumpower Machinery Corp. It trades about -0.11 of its total potential returns per unit of risk. Chumpower Machinery Corp is currently generating about 0.15 per unit of volatility. If you would invest  2,185  in Chumpower Machinery Corp on October 9, 2024 and sell it today you would earn a total of  85.00  from holding Chumpower Machinery Corp or generate 3.89% return on investment over 90 days.

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

China Development Financial  vs.  Chumpower Machinery Corp

China Development

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Development may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Chumpower Machinery Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chumpower Machinery Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chumpower Machinery is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Development and Chumpower Machinery

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

The idea behind China Development Financial and Chumpower Machinery Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.