Correlation Between Changchun Faway and XiAn Dagang

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

Diversification Opportunities for Changchun Faway and XiAn Dagang

0.15

Correlation Coefficient

Changchun Faway  XiAn Dagang

Average diversification

The 3 months correlation between Changchun and XiAn is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and XiAn Dagang Road in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XiAn Dagang Road 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 XiAn Dagang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XiAn Dagang Road has no effect on the direction of Changchun Faway i.e., Changchun Faway and XiAn Dagang go up and down completely randomly.

Pair Corralation between Changchun Faway and XiAn Dagang

If you would invest  624.00  in XiAn Dagang Road on October 4, 2024 and sell it today you would lose (2.00) from holding XiAn Dagang Road or give up 0.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	0.32%
Values	Daily Returns

Changchun Faway Automobile  vs.  XiAn Dagang Road

Changchun Faway Auto

Risk-Adjusted Performance

0 of 100

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.

XiAn Dagang Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XiAn Dagang Road has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, XiAn Dagang 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 XiAn Dagang

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

The idea behind Changchun Faway Automobile and XiAn Dagang Road 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..