Correlation Between Chengdu Kanghua and China Greatwall

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

By analyzing existing cross correlation between Chengdu Kanghua Biological and China Greatwall Computer, you can compare the effects of market volatilities on Chengdu Kanghua and China Greatwall 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 Chengdu Kanghua with a short position of China Greatwall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chengdu Kanghua and China Greatwall.

Diversification Opportunities for Chengdu Kanghua and China Greatwall

0.51

Correlation Coefficient

Chengdu Kanghua  China Greatwall

Very weak diversification

The 3 months correlation between Chengdu and China is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and China Greatwall Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Greatwall Computer and Chengdu Kanghua 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 Chengdu Kanghua Biological are associated (or correlated) with China Greatwall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Greatwall Computer has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and China Greatwall go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and China Greatwall

Assuming the 90 days trading horizon Chengdu Kanghua Biological is expected to generate 0.69 times more return on investment than China Greatwall. However, Chengdu Kanghua Biological is 1.46 times less risky than China Greatwall. It trades about 0.07 of its potential returns per unit of risk. China Greatwall Computer is currently generating about -0.01 per unit of risk. If you would invest  5,754  in Chengdu Kanghua Biological on December 25, 2024 and sell it today you would earn a total of  464.00  from holding Chengdu Kanghua Biological or generate 8.06% return on investment over 90 days.

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

Chengdu Kanghua Biological  vs.  China Greatwall Computer

Chengdu Kanghua Biol

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Kanghua Biological are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Kanghua may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Greatwall Computer

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Chengdu Kanghua and China Greatwall

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

The idea behind Chengdu Kanghua Biological and China Greatwall Computer 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.