Correlation Between Anhui Jianghuai and Qinghai Salt

Can any of the company-specific risk be diversified away by investing in both Anhui Jianghuai and Qinghai Salt 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 Anhui Jianghuai and Qinghai Salt into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Jianghuai Automobile and Qinghai Salt Lake, you can compare the effects of market volatilities on Anhui Jianghuai and Qinghai Salt 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 Anhui Jianghuai with a short position of Qinghai Salt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Jianghuai and Qinghai Salt.

Diversification Opportunities for Anhui Jianghuai and Qinghai Salt

0.36

Correlation Coefficient

Anhui Jianghuai  Qinghai Salt

Weak diversification

The 3 months correlation between Anhui and Qinghai is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Jianghuai Automobile and Qinghai Salt Lake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qinghai Salt Lake and Anhui Jianghuai 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 Anhui Jianghuai Automobile are associated (or correlated) with Qinghai Salt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qinghai Salt Lake has no effect on the direction of Anhui Jianghuai i.e., Anhui Jianghuai and Qinghai Salt go up and down completely randomly.

Pair Corralation between Anhui Jianghuai and Qinghai Salt

Assuming the 90 days trading horizon Anhui Jianghuai Automobile is expected to generate 2.24 times more return on investment than Qinghai Salt. However, Anhui Jianghuai is 2.24 times more volatile than Qinghai Salt Lake. It trades about 0.11 of its potential returns per unit of risk. Qinghai Salt Lake is currently generating about -0.03 per unit of risk. If you would invest  2,890  in Anhui Jianghuai Automobile on October 10, 2024 and sell it today you would earn a total of  745.00  from holding Anhui Jianghuai Automobile or generate 25.78% return on investment over 90 days.

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

Anhui Jianghuai Automobile  vs.  Qinghai Salt Lake

Anhui Jianghuai Auto

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jianghuai Automobile are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Jianghuai sustained solid returns over the last few months and may actually be approaching a breakup point.

Qinghai Salt Lake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Qinghai Salt Lake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Qinghai Salt is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Anhui Jianghuai and Qinghai Salt

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

The idea behind Anhui Jianghuai Automobile and Qinghai Salt Lake 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.