Correlation Between Chengdu Kanghua and Sichuan Tianwei

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

Diversification Opportunities for Chengdu Kanghua and Sichuan Tianwei

0.23

Correlation Coefficient

Chengdu Kanghua  Sichuan Tianwei

Modest diversification

The 3 months correlation between Chengdu and Sichuan is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and Sichuan Tianwei Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Tianwei Elec 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 Tianwei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Tianwei Elec has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and Sichuan Tianwei go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and Sichuan Tianwei

Assuming the 90 days trading horizon Chengdu Kanghua Biological is expected to generate 0.65 times more return on investment than Sichuan Tianwei. However, Chengdu Kanghua Biological is 1.54 times less risky than Sichuan Tianwei. It trades about 0.06 of its potential returns per unit of risk. Sichuan Tianwei Electronic is currently generating about -0.07 per unit of risk. If you would invest  5,890  in Chengdu Kanghua Biological on December 26, 2024 and sell it today you would earn a total of  358.00  from holding Chengdu Kanghua Biological or generate 6.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Chengdu Kanghua Biological  vs.  Sichuan Tianwei Electronic

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 4 (%) 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.

Sichuan Tianwei Elec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sichuan Tianwei Electronic 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Chengdu Kanghua and Sichuan Tianwei

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

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