Correlation Between Changchun Faway and Beijing SPC

Can any of the company-specific risk be diversified away by investing in both Changchun Faway and Beijing SPC 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 Changchun Faway and Beijing SPC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changchun Faway Automobile and Beijing SPC Environment, you can compare the effects of market volatilities on Changchun Faway and Beijing SPC 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 Changchun Faway with a short position of Beijing SPC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun Faway and Beijing SPC.

Diversification Opportunities for Changchun Faway and Beijing SPC

0.84

Correlation Coefficient

Changchun Faway  Beijing SPC

Very poor diversification

The 3 months correlation between Changchun and Beijing is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and Beijing SPC Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing SPC Environment and Changchun Faway 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 Changchun Faway Automobile are associated (or correlated) with Beijing SPC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing SPC Environment has no effect on the direction of Changchun Faway i.e., Changchun Faway and Beijing SPC go up and down completely randomly.

Pair Corralation between Changchun Faway and Beijing SPC

Assuming the 90 days trading horizon Changchun Faway Automobile is expected to generate 1.21 times more return on investment than Beijing SPC. However, Changchun Faway is 1.21 times more volatile than Beijing SPC Environment. It trades about 0.02 of its potential returns per unit of risk. Beijing SPC Environment is currently generating about -0.03 per unit of risk. If you would invest  829.00  in Changchun Faway Automobile on November 27, 2024 and sell it today you would earn a total of  91.00  from holding Changchun Faway Automobile or generate 10.98% return on investment over 90 days.

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

Changchun Faway Automobile  vs.  Beijing SPC Environment

Changchun Faway Auto

Risk-Adjusted Performance

Very Weak

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

Beijing SPC Environment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beijing SPC Environment 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 Changchun Faway and Beijing SPC

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

The idea behind Changchun Faway Automobile and Beijing SPC Environment 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.