Correlation Between Changshu Ruite and China National

Can any of the company-specific risk be diversified away by investing in both Changshu Ruite and China National 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 China National 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 China National Electric, you can compare the effects of market volatilities on Changshu Ruite and China National 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 China National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changshu Ruite and China National.

Diversification Opportunities for Changshu Ruite and China National

0.62

Correlation Coefficient

Changshu Ruite  China National

Poor diversification

The 3 months correlation between Changshu and China is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Changshu Ruite Electric and China National Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Electric 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 China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Electric has no effect on the direction of Changshu Ruite i.e., Changshu Ruite and China National go up and down completely randomly.

Pair Corralation between Changshu Ruite and China National

Assuming the 90 days trading horizon Changshu Ruite Electric is expected to generate 0.95 times more return on investment than China National. However, Changshu Ruite Electric is 1.05 times less risky than China National. It trades about 0.09 of its potential returns per unit of risk. China National Electric is currently generating about 0.04 per unit of risk. If you would invest  742.00  in Changshu Ruite Electric on December 26, 2024 and sell it today you would earn a total of  71.00  from holding Changshu Ruite Electric or generate 9.57% return on investment over 90 days.

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

Changshu Ruite Electric  vs.  China National Electric

Changshu Ruite Electric

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Changshu Ruite Electric are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changshu Ruite may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China National Electric

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China National Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Changshu Ruite and China National

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

The idea behind Changshu Ruite Electric and China National Electric 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.