Correlation Between Chengdu Kanghua and Sichuan Changhong

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

Diversification Opportunities for Chengdu Kanghua and Sichuan Changhong

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Correlation Coefficient

Chengdu Kanghua  Sichuan Changhong

Pay attention - limited upside

The 3 months correlation between Chengdu and Sichuan is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and Sichuan Changhong Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Changhong 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 Sichuan Changhong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Changhong has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and Sichuan Changhong go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and Sichuan Changhong

If you would invest (100.00) in Sichuan Changhong Electric on October 2, 2024 and sell it today you would earn a total of  100.00  from holding Sichuan Changhong Electric or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Chengdu Kanghua Biological  vs.  Sichuan Changhong Electric

Chengdu Kanghua Biol

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Chengdu Kanghua Biological has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Sichuan Changhong

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sichuan Changhong Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sichuan Changhong 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 Sichuan Changhong

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

The idea behind Chengdu Kanghua Biological and Sichuan Changhong 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.