Correlation Between Hua Xia and CIMC Vehicles

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

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

Diversification Opportunities for Hua Xia and CIMC Vehicles

0.66

Correlation Coefficient

Hua Xia  CIMC Vehicles

Poor diversification

The 3 months correlation between Hua and CIMC is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and CIMC Vehicles Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIMC Vehicles and Hua Xia 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 Hua Xia Bank are associated (or correlated) with CIMC Vehicles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIMC Vehicles has no effect on the direction of Hua Xia i.e., Hua Xia and CIMC Vehicles go up and down completely randomly.

Pair Corralation between Hua Xia and CIMC Vehicles

Assuming the 90 days trading horizon Hua Xia Bank is expected to under-perform the CIMC Vehicles. In addition to that, Hua Xia is 1.09 times more volatile than CIMC Vehicles Co. It trades about -0.05 of its total potential returns per unit of risk. CIMC Vehicles Co is currently generating about -0.06 per unit of volatility. If you would invest  931.00  in CIMC Vehicles Co on December 22, 2024 and sell it today you would lose (38.00) from holding CIMC Vehicles Co or give up 4.08% of portfolio value over 90 days.

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

Hua Xia Bank  vs.  CIMC Vehicles Co

Hua Xia Bank

Risk-Adjusted Performance

Very Weak

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

CIMC Vehicles

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hua Xia and CIMC Vehicles

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

The idea behind Hua Xia Bank and CIMC Vehicles Co 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.