Correlation Between Chongqing Road and Allied Machinery

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

Diversification Opportunities for Chongqing Road and Allied Machinery

-0.03

Correlation Coefficient

Chongqing Road  Allied Machinery

Good diversification

The 3 months correlation between Chongqing and Allied is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Allied Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Machinery 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 Allied Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Machinery has no effect on the direction of Chongqing Road i.e., Chongqing Road and Allied Machinery go up and down completely randomly.

Pair Corralation between Chongqing Road and Allied Machinery

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Allied Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Road Bridge is 2.33 times less risky than Allied Machinery. The stock trades about -0.03 of its potential returns per unit of risk. The Allied Machinery Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,746  in Allied Machinery Co on December 27, 2024 and sell it today you would earn a total of  229.00  from holding Allied Machinery Co or generate 13.12% 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.  Allied Machinery Co

Chongqing Road Bridge

Risk-Adjusted Performance

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.

Allied Machinery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Road and Allied Machinery

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

The idea behind Chongqing Road Bridge and Allied Machinery 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.