Correlation Between Chengdu Kanghua and Liaoning Chengda

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

Diversification Opportunities for Chengdu Kanghua and Liaoning Chengda

0.55

Correlation Coefficient

Chengdu Kanghua  Liaoning Chengda

Very weak diversification

The 3 months correlation between Chengdu and Liaoning is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and Liaoning Chengda Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Chengda Bio 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 Liaoning Chengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Chengda Bio has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and Liaoning Chengda go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and Liaoning Chengda

Assuming the 90 days trading horizon Chengdu Kanghua is expected to generate 2.02 times less return on investment than Liaoning Chengda. But when comparing it to its historical volatility, Chengdu Kanghua Biological is 1.46 times less risky than Liaoning Chengda. It trades about 0.13 of its potential returns per unit of risk. Liaoning Chengda Biotechnology is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,606  in Liaoning Chengda Biotechnology on December 2, 2024 and sell it today you would earn a total of  232.00  from holding Liaoning Chengda Biotechnology or generate 8.9% 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.  Liaoning Chengda Biotechnology

Chengdu Kanghua Biol

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Liaoning Chengda Bio

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Chengda Biotechnology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Liaoning Chengda 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 Liaoning Chengda

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

The idea behind Chengdu Kanghua Biological and Liaoning Chengda Biotechnology 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.