Correlation Between Chongqing Road and Lushang Property

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

Diversification Opportunities for Chongqing Road and Lushang Property

-0.34

Correlation Coefficient

Chongqing Road  Lushang Property

Very good diversification

The 3 months correlation between Chongqing and Lushang is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Lushang Property Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lushang Property 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 Lushang Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lushang Property has no effect on the direction of Chongqing Road i.e., Chongqing Road and Lushang Property go up and down completely randomly.

Pair Corralation between Chongqing Road and Lushang Property

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to generate 1.42 times more return on investment than Lushang Property. However, Chongqing Road is 1.42 times more volatile than Lushang Property Co. It trades about 0.03 of its potential returns per unit of risk. Lushang Property Co is currently generating about 0.0 per unit of risk. If you would invest  509.00  in Chongqing Road Bridge on October 9, 2024 and sell it today you would earn a total of  10.00  from holding Chongqing Road Bridge or generate 1.96% return on investment over 90 days.

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

Chongqing Road Bridge  vs.  Lushang Property Co

Chongqing Road Bridge

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Road Bridge are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Road may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lushang Property

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lushang Property Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lushang Property 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 Lushang Property

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

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