Correlation Between Wuhan Yangtze and Qingdao Choho

Can any of the company-specific risk be diversified away by investing in both Wuhan Yangtze and Qingdao Choho 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 Wuhan Yangtze and Qingdao Choho into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wuhan Yangtze Communication and Qingdao Choho Industrial, you can compare the effects of market volatilities on Wuhan Yangtze and Qingdao Choho 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 Wuhan Yangtze with a short position of Qingdao Choho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuhan Yangtze and Qingdao Choho.

Diversification Opportunities for Wuhan Yangtze and Qingdao Choho

0.72

Correlation Coefficient

Wuhan Yangtze  Qingdao Choho

Poor diversification

The 3 months correlation between Wuhan and Qingdao is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Yangtze Communication and Qingdao Choho Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingdao Choho Industrial and Wuhan Yangtze 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 Wuhan Yangtze Communication are associated (or correlated) with Qingdao Choho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingdao Choho Industrial has no effect on the direction of Wuhan Yangtze i.e., Wuhan Yangtze and Qingdao Choho go up and down completely randomly.

Pair Corralation between Wuhan Yangtze and Qingdao Choho

Assuming the 90 days trading horizon Wuhan Yangtze Communication is expected to under-perform the Qingdao Choho. In addition to that, Wuhan Yangtze is 1.88 times more volatile than Qingdao Choho Industrial. It trades about -0.31 of its total potential returns per unit of risk. Qingdao Choho Industrial is currently generating about -0.24 per unit of volatility. If you would invest  2,895  in Qingdao Choho Industrial on October 9, 2024 and sell it today you would lose (293.00) from holding Qingdao Choho Industrial or give up 10.12% of portfolio value over 90 days.

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

Wuhan Yangtze Communication  vs.  Qingdao Choho Industrial

Wuhan Yangtze Commun

Risk-Adjusted Performance

5 of 100

Modest

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

Qingdao Choho Industrial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Qingdao Choho Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Qingdao Choho is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wuhan Yangtze and Qingdao Choho

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

The idea behind Wuhan Yangtze Communication and Qingdao Choho Industrial 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.