Correlation Between Chongqing Road and Tianjin Hi

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

Diversification Opportunities for Chongqing Road and Tianjin Hi

0.68

Correlation Coefficient

Chongqing Road  Tianjin Hi

Poor diversification

The 3 months correlation between Chongqing and Tianjin is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Tianjin Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Hi Tech 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 Tianjin Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Hi Tech has no effect on the direction of Chongqing Road i.e., Chongqing Road and Tianjin Hi go up and down completely randomly.

Pair Corralation between Chongqing Road and Tianjin Hi

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Tianjin Hi. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Road Bridge is 1.03 times less risky than Tianjin Hi. The stock trades about -0.09 of its potential returns per unit of risk. The Tianjin Hi Tech Development is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  306.00  in Tianjin Hi Tech Development on October 26, 2024 and sell it today you would lose (20.00) from holding Tianjin Hi Tech Development or give up 6.54% of portfolio value over 90 days.

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

Chongqing Road Bridge  vs.  Tianjin Hi Tech Development

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Tianjin Hi Tech

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Chongqing Road and Tianjin Hi

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

The idea behind Chongqing Road Bridge and Tianjin Hi Tech Development 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.