Correlation Between Anhui Jianghuai and Changchun Engley

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

Diversification Opportunities for Anhui Jianghuai and Changchun Engley

0.19

Correlation Coefficient

Anhui Jianghuai  Changchun Engley

Average diversification

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

Pair Corralation between Anhui Jianghuai and Changchun Engley

Assuming the 90 days trading horizon Anhui Jianghuai Automobile is expected to generate 1.3 times more return on investment than Changchun Engley. However, Anhui Jianghuai is 1.3 times more volatile than Changchun Engley Automobile. It trades about 0.07 of its potential returns per unit of risk. Changchun Engley Automobile is currently generating about -0.02 per unit of risk. If you would invest  1,681  in Anhui Jianghuai Automobile on October 26, 2024 and sell it today you would earn a total of  2,530  from holding Anhui Jianghuai Automobile or generate 150.51% return on investment over 90 days.

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

Anhui Jianghuai Automobile  vs.  Changchun Engley Automobile

Anhui Jianghuai Auto

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jianghuai Automobile are ranked lower than 7 (%) 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.

Changchun Engley Aut

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Changchun Engley Automobile 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 Anhui Jianghuai and Changchun Engley

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

The idea behind Anhui Jianghuai Automobile and Changchun Engley Automobile 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.