Correlation Between Caihong Display and Sichuan Swellfun

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

Diversification Opportunities for Caihong Display and Sichuan Swellfun

-0.34

Correlation Coefficient

Caihong Display  Sichuan Swellfun

Very good diversification

The 3 months correlation between Caihong and Sichuan is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices and Sichuan Swellfun Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Swellfun 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 Sichuan Swellfun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Swellfun has no effect on the direction of Caihong Display i.e., Caihong Display and Sichuan Swellfun go up and down completely randomly.

Pair Corralation between Caihong Display and Sichuan Swellfun

Assuming the 90 days trading horizon Caihong Display Devices is expected to under-perform the Sichuan Swellfun. But the stock apears to be less risky and, when comparing its historical volatility, Caihong Display Devices is 1.05 times less risky than Sichuan Swellfun. The stock trades about -0.06 of its potential returns per unit of risk. The Sichuan Swellfun Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,353  in Sichuan Swellfun Co on December 30, 2024 and sell it today you would lose (268.00) from holding Sichuan Swellfun Co or give up 5.01% of portfolio value over 90 days.

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

Caihong Display Devices  vs.  Sichuan Swellfun Co

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 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.

Sichuan Swellfun

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Caihong Display and Sichuan Swellfun

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

The idea behind Caihong Display Devices and Sichuan Swellfun 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.

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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.