Correlation Between CIMC Vehicles and Sichuan Hebang

Can any of the company-specific risk be diversified away by investing in both CIMC Vehicles and Sichuan Hebang 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 CIMC Vehicles and Sichuan Hebang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CIMC Vehicles Co and Sichuan Hebang Biotechnology, you can compare the effects of market volatilities on CIMC Vehicles and Sichuan Hebang 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 CIMC Vehicles with a short position of Sichuan Hebang. Check out your portfolio center. Please also check ongoing floating volatility patterns of CIMC Vehicles and Sichuan Hebang.

Diversification Opportunities for CIMC Vehicles and Sichuan Hebang

0.84

Correlation Coefficient

CIMC Vehicles  Sichuan Hebang

Very poor diversification

The 3 months correlation between CIMC and Sichuan is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding CIMC Vehicles Co and Sichuan Hebang Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Hebang Biote and CIMC Vehicles 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 CIMC Vehicles Co are associated (or correlated) with Sichuan Hebang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Hebang Biote has no effect on the direction of CIMC Vehicles i.e., CIMC Vehicles and Sichuan Hebang go up and down completely randomly.

Pair Corralation between CIMC Vehicles and Sichuan Hebang

Assuming the 90 days trading horizon CIMC Vehicles is expected to generate 2.11 times less return on investment than Sichuan Hebang. In addition to that, CIMC Vehicles is 1.11 times more volatile than Sichuan Hebang Biotechnology. It trades about 0.09 of its total potential returns per unit of risk. Sichuan Hebang Biotechnology is currently generating about 0.2 per unit of volatility. If you would invest  165.00  in Sichuan Hebang Biotechnology on September 17, 2024 and sell it today you would earn a total of  64.00  from holding Sichuan Hebang Biotechnology or generate 38.79% return on investment over 90 days.

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

CIMC Vehicles Co  vs.  Sichuan Hebang Biotechnology

CIMC Vehicles

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CIMC Vehicles Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CIMC Vehicles sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Hebang Biote

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Hebang Biotechnology are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Hebang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CIMC Vehicles and Sichuan Hebang

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

The idea behind CIMC Vehicles Co and Sichuan Hebang 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.