Correlation Between Caihong Display and China Resources

Can any of the company-specific risk be diversified away by investing in both Caihong Display and China Resources 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 Caihong Display and China Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caihong Display Devices and China Resources Sanjiu, you can compare the effects of market volatilities on Caihong Display and China Resources 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 Caihong Display with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caihong Display and China Resources.

Diversification Opportunities for Caihong Display and China Resources

0.59

Correlation Coefficient

Caihong Display  China Resources

Very weak diversification

The 3 months correlation between Caihong and China is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices and China Resources Sanjiu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Sanjiu and Caihong Display 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 Caihong Display Devices are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Sanjiu has no effect on the direction of Caihong Display i.e., Caihong Display and China Resources go up and down completely randomly.

Pair Corralation between Caihong Display and China Resources

Assuming the 90 days trading horizon Caihong Display Devices is expected to generate 1.93 times more return on investment than China Resources. However, Caihong Display is 1.93 times more volatile than China Resources Sanjiu. It trades about -0.02 of its potential returns per unit of risk. China Resources Sanjiu is currently generating about -0.13 per unit of risk. If you would invest  833.00  in Caihong Display Devices on December 25, 2024 and sell it today you would lose (33.00) from holding Caihong Display Devices or give up 3.96% of portfolio value over 90 days.

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

Caihong Display Devices  vs.  China Resources Sanjiu

Caihong Display Devices

Risk-Adjusted Performance

Very Weak

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

China Resources Sanjiu

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Resources Sanjiu 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 Caihong Display and China Resources

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

The idea behind Caihong Display Devices and China Resources Sanjiu 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.