Correlation Between Changchun Faway and Changjiang Jinggong

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

Diversification Opportunities for Changchun Faway and Changjiang Jinggong

0.68

Correlation Coefficient

Changchun Faway  Changjiang Jinggong

Poor diversification

The 3 months correlation between Changchun and Changjiang is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and Changjiang Jinggong Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changjiang Jinggong Steel 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 Changjiang Jinggong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changjiang Jinggong Steel has no effect on the direction of Changchun Faway i.e., Changchun Faway and Changjiang Jinggong go up and down completely randomly.

Pair Corralation between Changchun Faway and Changjiang Jinggong

Assuming the 90 days trading horizon Changchun Faway Automobile is expected to generate 0.93 times more return on investment than Changjiang Jinggong. However, Changchun Faway Automobile is 1.08 times less risky than Changjiang Jinggong. It trades about -0.32 of its potential returns per unit of risk. Changjiang Jinggong Steel is currently generating about -0.3 per unit of risk. If you would invest  958.00  in Changchun Faway Automobile on October 6, 2024 and sell it today you would lose (103.00) from holding Changchun Faway Automobile or give up 10.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Changchun Faway Automobile  vs.  Changjiang Jinggong Steel

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 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.

Changjiang Jinggong Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Changchun Faway Automobile and Changjiang Jinggong Steel 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.