Correlation Between China Asset and Cangzhou Mingzhu

Can any of the company-specific risk be diversified away by investing in both China Asset and Cangzhou Mingzhu 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 Cangzhou Mingzhu 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 Cangzhou Mingzhu Plastic, you can compare the effects of market volatilities on China Asset and Cangzhou Mingzhu 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 Cangzhou Mingzhu. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Asset and Cangzhou Mingzhu.

Diversification Opportunities for China Asset and Cangzhou Mingzhu

0.23

Correlation Coefficient

China Asset  Cangzhou Mingzhu

Modest diversification

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

Pair Corralation between China Asset and Cangzhou Mingzhu

Assuming the 90 days trading horizon China Asset Management is expected to generate 0.39 times more return on investment than Cangzhou Mingzhu. However, China Asset Management is 2.55 times less risky than Cangzhou Mingzhu. It trades about 0.26 of its potential returns per unit of risk. Cangzhou Mingzhu Plastic is currently generating about -0.04 per unit of risk. If you would invest  314.00  in China Asset Management on October 8, 2024 and sell it today you would earn a total of  57.00  from holding China Asset Management or generate 18.15% return on investment over 90 days.

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

China Asset Management  vs.  Cangzhou Mingzhu Plastic

China Asset Management

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 20 (%) 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.

Cangzhou Mingzhu Plastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cangzhou Mingzhu Plastic 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.

Pair Trading with China Asset and Cangzhou Mingzhu

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

The idea behind China Asset Management and Cangzhou Mingzhu Plastic 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.