Correlation Between Chengdu Kanghua and Suzhou Novoprotein

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

Diversification Opportunities for Chengdu Kanghua and Suzhou Novoprotein

0.91

Correlation Coefficient

Chengdu Kanghua  Suzhou Novoprotein

Almost no diversification

The 3 months correlation between Chengdu and Suzhou is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and Suzhou Novoprotein Scientific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Novoprotein 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 Suzhou Novoprotein. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Novoprotein has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and Suzhou Novoprotein go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and Suzhou Novoprotein

Assuming the 90 days trading horizon Chengdu Kanghua is expected to generate 1.2 times less return on investment than Suzhou Novoprotein. In addition to that, Chengdu Kanghua is 1.56 times more volatile than Suzhou Novoprotein Scientific. It trades about 0.06 of its total potential returns per unit of risk. Suzhou Novoprotein Scientific is currently generating about 0.12 per unit of volatility. If you would invest  3,013  in Suzhou Novoprotein Scientific on September 2, 2024 and sell it today you would earn a total of  612.00  from holding Suzhou Novoprotein Scientific or generate 20.31% return on investment over 90 days.

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

Chengdu Kanghua Biological  vs.  Suzhou Novoprotein Scientific

Chengdu Kanghua Biol

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Kanghua Biological are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Kanghua sustained solid returns over the last few months and may actually be approaching a breakup point.

Suzhou Novoprotein

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Novoprotein Scientific are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Novoprotein sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chengdu Kanghua and Suzhou Novoprotein

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

The idea behind Chengdu Kanghua Biological and Suzhou Novoprotein Scientific 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.