Correlation Between Chongqing Road and Yili Chuanning

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

Diversification Opportunities for Chongqing Road and Yili Chuanning

0.86

Correlation Coefficient

Chongqing Road  Yili Chuanning

Very poor diversification

The 3 months correlation between Chongqing and Yili is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Yili Chuanning Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yili Chuanning Biote 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 Yili Chuanning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yili Chuanning Biote has no effect on the direction of Chongqing Road i.e., Chongqing Road and Yili Chuanning go up and down completely randomly.

Pair Corralation between Chongqing Road and Yili Chuanning

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to generate 1.02 times more return on investment than Yili Chuanning. However, Chongqing Road is 1.02 times more volatile than Yili Chuanning Biotechnology. It trades about 0.26 of its potential returns per unit of risk. Yili Chuanning Biotechnology is currently generating about 0.09 per unit of risk. If you would invest  367.00  in Chongqing Road Bridge on September 1, 2024 and sell it today you would earn a total of  301.00  from holding Chongqing Road Bridge or generate 82.02% return on investment over 90 days.

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

Chongqing Road Bridge  vs.  Yili Chuanning Biotechnology

Chongqing Road Bridge

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Road Bridge are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Road sustained solid returns over the last few months and may actually be approaching a breakup point.

Yili Chuanning Biote

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yili Chuanning Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yili Chuanning sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Road and Yili Chuanning

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

The idea behind Chongqing Road Bridge and Yili Chuanning Biotechnology 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.