Correlation Between Chongqing Road and Shanghai Shuixing

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

Diversification Opportunities for Chongqing Road and Shanghai Shuixing

-0.19

Correlation Coefficient

Chongqing Road  Shanghai Shuixing

Good diversification

The 3 months correlation between Chongqing and Shanghai is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Shanghai Shuixing Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shuixing Home 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 Shanghai Shuixing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shuixing Home has no effect on the direction of Chongqing Road i.e., Chongqing Road and Shanghai Shuixing go up and down completely randomly.

Pair Corralation between Chongqing Road and Shanghai Shuixing

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Shanghai Shuixing. In addition to that, Chongqing Road is 1.06 times more volatile than Shanghai Shuixing Home. It trades about -0.49 of its total potential returns per unit of risk. Shanghai Shuixing Home is currently generating about -0.19 per unit of volatility. If you would invest  1,804  in Shanghai Shuixing Home on October 13, 2024 and sell it today you would lose (232.00) from holding Shanghai Shuixing Home or give up 12.86% of portfolio value over 90 days.

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

Chongqing Road Bridge  vs.  Shanghai Shuixing Home

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.

Shanghai Shuixing Home

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Chongqing Road and Shanghai Shuixing

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

The idea behind Chongqing Road Bridge and Shanghai Shuixing Home 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.