Correlation Between Changchun Faway and Techshine Electronics

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

Diversification Opportunities for Changchun Faway and Techshine Electronics

0.75

Correlation Coefficient

Changchun Faway  Techshine Electronics

Poor diversification

The 3 months correlation between Changchun and Techshine is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and Techshine Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techshine Electronics 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 Techshine Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techshine Electronics has no effect on the direction of Changchun Faway i.e., Changchun Faway and Techshine Electronics go up and down completely randomly.

Pair Corralation between Changchun Faway and Techshine Electronics

Assuming the 90 days trading horizon Changchun Faway is expected to generate 1.73 times less return on investment than Techshine Electronics. But when comparing it to its historical volatility, Changchun Faway Automobile is 1.28 times less risky than Techshine Electronics. It trades about 0.02 of its potential returns per unit of risk. Techshine Electronics Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,091  in Techshine Electronics Co on October 1, 2024 and sell it today you would earn a total of  34.00  from holding Techshine Electronics Co or generate 1.63% 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.  Techshine Electronics Co

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.

Techshine Electronics

Risk-Adjusted Performance

0 of 100

Insignificant

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

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

The idea behind Changchun Faway Automobile and Techshine Electronics 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.