Correlation Between Changchun Faway and Hubeiyichang Transportation

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

Diversification Opportunities for Changchun Faway and Hubeiyichang Transportation

0.72

Correlation Coefficient

Changchun Faway  Hubeiyichang Transportation

Poor diversification

The 3 months correlation between Changchun and Hubeiyichang is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and Hubeiyichang Transportation Gr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubeiyichang Transportation 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 Hubeiyichang Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubeiyichang Transportation has no effect on the direction of Changchun Faway i.e., Changchun Faway and Hubeiyichang Transportation go up and down completely randomly.

Pair Corralation between Changchun Faway and Hubeiyichang Transportation

Assuming the 90 days trading horizon Changchun Faway Automobile is expected to generate 1.04 times more return on investment than Hubeiyichang Transportation. However, Changchun Faway is 1.04 times more volatile than Hubeiyichang Transportation Group. It trades about 0.08 of its potential returns per unit of risk. Hubeiyichang Transportation Group is currently generating about 0.05 per unit of risk. If you would invest  738.00  in Changchun Faway Automobile on October 22, 2024 and sell it today you would earn a total of  133.00  from holding Changchun Faway Automobile or generate 18.02% return on investment over 90 days.

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

Changchun Faway Automobile  vs.  Hubeiyichang Transportation Gr

Changchun Faway Auto

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun Faway Automobile are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Hubeiyichang Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Changchun Faway and Hubeiyichang Transportation

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

The idea behind Changchun Faway Automobile and Hubeiyichang Transportation Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.