Correlation Between China Marine and Changchun Faway

Can any of the company-specific risk be diversified away by investing in both China Marine and Changchun Faway 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 China Marine and Changchun Faway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Marine Information and Changchun Faway Automobile, you can compare the effects of market volatilities on China Marine and Changchun Faway 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 China Marine with a short position of Changchun Faway. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Marine and Changchun Faway.

Diversification Opportunities for China Marine and Changchun Faway

0.6

Correlation Coefficient

China Marine  Changchun Faway

Poor diversification

The 3 months correlation between China and Changchun is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding China Marine Information and Changchun Faway Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun Faway Auto and China Marine 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 China Marine Information are associated (or correlated) with Changchun Faway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun Faway Auto has no effect on the direction of China Marine i.e., China Marine and Changchun Faway go up and down completely randomly.

Pair Corralation between China Marine and Changchun Faway

Assuming the 90 days trading horizon China Marine Information is expected to generate 1.28 times more return on investment than Changchun Faway. However, China Marine is 1.28 times more volatile than Changchun Faway Automobile. It trades about 0.03 of its potential returns per unit of risk. Changchun Faway Automobile is currently generating about 0.02 per unit of risk. If you would invest  2,341  in China Marine Information on September 26, 2024 and sell it today you would earn a total of  573.00  from holding China Marine Information or generate 24.48% return on investment over 90 days.

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

China Marine Information  vs.  Changchun Faway Automobile

China Marine Information

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Marine Information are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Marine sustained solid returns over the last few months and may actually be approaching a breakup point.

Changchun Faway Auto

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun Faway Automobile are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun Faway may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Marine and Changchun Faway

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

The idea behind China Marine Information and Changchun Faway Automobile 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.