Correlation Between Chongqing Road and Beijing Mainstreets

Can any of the company-specific risk be diversified away by investing in both Chongqing Road and Beijing Mainstreets 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 Beijing Mainstreets 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 Beijing Mainstreets Investment, you can compare the effects of market volatilities on Chongqing Road and Beijing Mainstreets 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 Beijing Mainstreets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Road and Beijing Mainstreets.

Diversification Opportunities for Chongqing Road and Beijing Mainstreets

0.31

Correlation Coefficient

Chongqing Road  Beijing Mainstreets

Weak diversification

The 3 months correlation between Chongqing and Beijing is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Beijing Mainstreets Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Mainstreets 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 Beijing Mainstreets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Mainstreets has no effect on the direction of Chongqing Road i.e., Chongqing Road and Beijing Mainstreets go up and down completely randomly.

Pair Corralation between Chongqing Road and Beijing Mainstreets

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Beijing Mainstreets. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Road Bridge is 1.04 times less risky than Beijing Mainstreets. The stock trades about -0.04 of its potential returns per unit of risk. The Beijing Mainstreets Investment is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  203.00  in Beijing Mainstreets Investment on October 24, 2024 and sell it today you would earn a total of  65.00  from holding Beijing Mainstreets Investment or generate 32.02% return on investment over 90 days.

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

Chongqing Road Bridge  vs.  Beijing Mainstreets Investment

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 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.

Beijing Mainstreets

Risk-Adjusted Performance

10 of 100

Good

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

Pair Trading with Chongqing Road and Beijing Mainstreets

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

The idea behind Chongqing Road Bridge and Beijing Mainstreets Investment 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.