Correlation Between Changchun Faway and Shuhua Sports

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

Diversification Opportunities for Changchun Faway and Shuhua Sports

0.72

Correlation Coefficient

Changchun Faway  Shuhua Sports

Poor diversification

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

Pair Corralation between Changchun Faway and Shuhua Sports

Assuming the 90 days trading horizon Changchun Faway is expected to generate 4.71 times less return on investment than Shuhua Sports. But when comparing it to its historical volatility, Changchun Faway Automobile is 1.25 times less risky than Shuhua Sports. It trades about 0.02 of its potential returns per unit of risk. Shuhua Sports Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  758.00  in Shuhua Sports Co on October 1, 2024 and sell it today you would earn a total of  54.00  from holding Shuhua Sports Co or generate 7.12% 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.  Shuhua Sports Co

Changchun Faway Auto

Risk-Adjusted Performance

0 of 100

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.

Shuhua Sports

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Changchun Faway Automobile and Shuhua Sports 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.