Correlation Between Chongqing Road and Hainan Pearl

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

By analyzing existing cross correlation between Chongqing Road Bridge and Hainan Pearl River, you can compare the effects of market volatilities on Chongqing Road and Hainan Pearl 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 Road with a short position of Hainan Pearl. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Road and Hainan Pearl.

Diversification Opportunities for Chongqing Road and Hainan Pearl

0.61

Correlation Coefficient

Chongqing Road  Hainan Pearl

Poor diversification

The 3 months correlation between Chongqing and Hainan is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Hainan Pearl River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Pearl River and Chongqing Road 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 Road Bridge are associated (or correlated) with Hainan Pearl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Pearl River has no effect on the direction of Chongqing Road i.e., Chongqing Road and Hainan Pearl go up and down completely randomly.

Pair Corralation between Chongqing Road and Hainan Pearl

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Hainan Pearl. In addition to that, Chongqing Road is 1.36 times more volatile than Hainan Pearl River. It trades about -0.15 of its total potential returns per unit of risk. Hainan Pearl River is currently generating about -0.05 per unit of volatility. If you would invest  655.00  in Hainan Pearl River on October 6, 2024 and sell it today you would lose (50.00) from holding Hainan Pearl River or give up 7.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.73%
Values	Daily Returns

Chongqing Road Bridge  vs.  Hainan Pearl River

Chongqing Road Bridge

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hainan Pearl River

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hainan Pearl River 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 Chongqing Road and Hainan Pearl

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

The idea behind Chongqing Road Bridge and Hainan Pearl River 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.