Correlation Between China Asset and ChengDu Hi

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

By analyzing existing cross correlation between China Asset Management and ChengDu Hi Tech Development, you can compare the effects of market volatilities on China Asset and ChengDu Hi 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 China Asset with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Asset and ChengDu Hi.

Diversification Opportunities for China Asset and ChengDu Hi

-0.15

Correlation Coefficient

China Asset  ChengDu Hi

Good diversification

The 3 months correlation between China and ChengDu is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding China Asset Management and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and China Asset 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 China Asset Management are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of China Asset i.e., China Asset and ChengDu Hi go up and down completely randomly.

Pair Corralation between China Asset and ChengDu Hi

Assuming the 90 days trading horizon China Asset Management is expected to generate 0.36 times more return on investment than ChengDu Hi. However, China Asset Management is 2.75 times less risky than ChengDu Hi. It trades about 0.51 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about -0.21 per unit of risk. If you would invest  324.00  in China Asset Management on October 9, 2024 and sell it today you would earn a total of  46.00  from holding China Asset Management or generate 14.2% return on investment over 90 days.

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

China Asset Management  vs.  ChengDu Hi Tech Development

China Asset Management

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Asset sustained solid returns over the last few months and may actually be approaching a breakup point.

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChengDu Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ChengDu Hi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Asset and ChengDu Hi

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

The idea behind China Asset Management and ChengDu Hi Tech Development 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.