Correlation Between Chongqing VDL and China Marine

Can any of the company-specific risk be diversified away by investing in both Chongqing VDL and China Marine 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 Chongqing VDL and China Marine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chongqing VDL Electronics and China Marine Information, you can compare the effects of market volatilities on Chongqing VDL and China Marine 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 Chongqing VDL with a short position of China Marine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing VDL and China Marine.

Diversification Opportunities for Chongqing VDL and China Marine

0.71

Correlation Coefficient

Chongqing VDL  China Marine

Poor diversification

The 3 months correlation between Chongqing and China is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing VDL Electronics and China Marine Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Marine Information and Chongqing VDL 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 Chongqing VDL Electronics are associated (or correlated) with China Marine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Marine Information has no effect on the direction of Chongqing VDL i.e., Chongqing VDL and China Marine go up and down completely randomly.

Pair Corralation between Chongqing VDL and China Marine

Assuming the 90 days trading horizon Chongqing VDL Electronics is expected to generate 1.56 times more return on investment than China Marine. However, Chongqing VDL is 1.56 times more volatile than China Marine Information. It trades about 0.02 of its potential returns per unit of risk. China Marine Information is currently generating about 0.03 per unit of risk. If you would invest  5,364  in Chongqing VDL Electronics on September 26, 2024 and sell it today you would lose (30.00) from holding Chongqing VDL Electronics or give up 0.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Chongqing VDL Electronics  vs.  China Marine Information

Chongqing VDL Electronics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing VDL Electronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing VDL sustained solid returns over the last few months and may actually be approaching a breakup point.

China Marine Information

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Marine Information are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Marine sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing VDL and China Marine

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

The idea behind Chongqing VDL Electronics and China Marine Information 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.