Correlation Between Chongqing Road and Bank of Nanjing

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

Diversification Opportunities for Chongqing Road and Bank of Nanjing

-0.25

Correlation Coefficient

Chongqing Road  Bank of Nanjing

Very good diversification

The 3 months correlation between Chongqing and Bank is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Bank of Nanjing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nanjing 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 Bank of Nanjing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Nanjing has no effect on the direction of Chongqing Road i.e., Chongqing Road and Bank of Nanjing go up and down completely randomly.

Pair Corralation between Chongqing Road and Bank of Nanjing

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Bank of Nanjing. In addition to that, Chongqing Road is 3.87 times more volatile than Bank of Nanjing. It trades about -0.17 of its total potential returns per unit of risk. Bank of Nanjing is currently generating about 0.07 per unit of volatility. If you would invest  1,012  in Bank of Nanjing on October 7, 2024 and sell it today you would earn a total of  26.00  from holding Bank of Nanjing or generate 2.57% 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.  Bank of Nanjing

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.

Bank of Nanjing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Nanjing 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 Bank of Nanjing

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

The idea behind Chongqing Road Bridge and Bank of Nanjing 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.