Correlation Between Changshu Ruite and ACM Research

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

By analyzing existing cross correlation between Changshu Ruite Electric and ACM Research Shanghai, you can compare the effects of market volatilities on Changshu Ruite and ACM Research 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 Changshu Ruite with a short position of ACM Research. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changshu Ruite and ACM Research.

Diversification Opportunities for Changshu Ruite and ACM Research

0.8

Correlation Coefficient

Changshu Ruite  ACM Research

Very poor diversification

The 3 months correlation between Changshu and ACM is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Changshu Ruite Electric and ACM Research Shanghai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACM Research Shanghai and Changshu Ruite 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 Changshu Ruite Electric are associated (or correlated) with ACM Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACM Research Shanghai has no effect on the direction of Changshu Ruite i.e., Changshu Ruite and ACM Research go up and down completely randomly.

Pair Corralation between Changshu Ruite and ACM Research

Assuming the 90 days trading horizon Changshu Ruite is expected to generate 1.0 times less return on investment than ACM Research. But when comparing it to its historical volatility, Changshu Ruite Electric is 1.36 times less risky than ACM Research. It trades about 0.19 of its potential returns per unit of risk. ACM Research Shanghai is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  7,766  in ACM Research Shanghai on September 22, 2024 and sell it today you would earn a total of  2,852  from holding ACM Research Shanghai or generate 36.72% return on investment over 90 days.

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

Changshu Ruite Electric  vs.  ACM Research Shanghai

Changshu Ruite Electric

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Changshu Ruite Electric are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changshu Ruite sustained solid returns over the last few months and may actually be approaching a breakup point.

ACM Research Shanghai

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ACM Research Shanghai are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ACM Research sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changshu Ruite and ACM Research

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

The idea behind Changshu Ruite Electric and ACM Research Shanghai 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.