Correlation Between Chengdu Kanghua and Zhongshan Public

Can any of the company-specific risk be diversified away by investing in both Chengdu Kanghua and Zhongshan Public 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 Zhongshan Public 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 Zhongshan Public Utilities, you can compare the effects of market volatilities on Chengdu Kanghua and Zhongshan Public 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 Zhongshan Public. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chengdu Kanghua and Zhongshan Public.

Diversification Opportunities for Chengdu Kanghua and Zhongshan Public

0.76

Correlation Coefficient

Chengdu Kanghua  Zhongshan Public

Poor diversification

The 3 months correlation between Chengdu and Zhongshan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and Zhongshan Public Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongshan Public Uti 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 Zhongshan Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongshan Public Uti has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and Zhongshan Public go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and Zhongshan Public

Assuming the 90 days trading horizon Chengdu Kanghua Biological is expected to generate 1.96 times more return on investment than Zhongshan Public. However, Chengdu Kanghua is 1.96 times more volatile than Zhongshan Public Utilities. It trades about 0.07 of its potential returns per unit of risk. Zhongshan Public Utilities is currently generating about 0.02 per unit of risk. If you would invest  5,878  in Chengdu Kanghua Biological on December 27, 2024 and sell it today you would earn a total of  483.00  from holding Chengdu Kanghua Biological or generate 8.22% return on investment over 90 days.

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

Chengdu Kanghua Biological  vs.  Zhongshan Public Utilities

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.

Zhongshan Public Uti

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Public Utilities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhongshan Public 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 Zhongshan Public

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

The idea behind Chengdu Kanghua Biological and Zhongshan Public Utilities 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..