Correlation Between Changsha Jingjia and Chongqing Road

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

By analyzing existing cross correlation between Changsha Jingjia Microelectronics and Chongqing Road Bridge, you can compare the effects of market volatilities on Changsha Jingjia and Chongqing Road 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 Changsha Jingjia with a short position of Chongqing Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changsha Jingjia and Chongqing Road.

Diversification Opportunities for Changsha Jingjia and Chongqing Road

0.31

Correlation Coefficient

Changsha Jingjia  Chongqing Road

Weak diversification

The 3 months correlation between Changsha and Chongqing is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Changsha Jingjia Microelectron and Chongqing Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Road Bridge and Changsha Jingjia 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 Changsha Jingjia Microelectronics are associated (or correlated) with Chongqing Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Road Bridge has no effect on the direction of Changsha Jingjia i.e., Changsha Jingjia and Chongqing Road go up and down completely randomly.

Pair Corralation between Changsha Jingjia and Chongqing Road

Assuming the 90 days trading horizon Changsha Jingjia Microelectronics is expected to generate 1.1 times more return on investment than Chongqing Road. However, Changsha Jingjia is 1.1 times more volatile than Chongqing Road Bridge. It trades about 0.03 of its potential returns per unit of risk. Chongqing Road Bridge is currently generating about 0.02 per unit of risk. If you would invest  7,764  in Changsha Jingjia Microelectronics on October 6, 2024 and sell it today you would earn a total of  869.00  from holding Changsha Jingjia Microelectronics or generate 11.19% return on investment over 90 days.

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

Changsha Jingjia Microelectron  vs.  Chongqing Road Bridge

Changsha Jingjia Mic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Chongqing Road Bridge

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Changsha Jingjia and Chongqing Road

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

The idea behind Changsha Jingjia Microelectronics and Chongqing Road Bridge 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.

Check out your portfolio center.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.