Correlation Between Chongqing Rural and Ningbo Fangzheng

Can any of the company-specific risk be diversified away by investing in both Chongqing Rural and Ningbo Fangzheng 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 Chongqing Rural and Ningbo Fangzheng into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chongqing Rural Commercial and Ningbo Fangzheng Automobile, you can compare the effects of market volatilities on Chongqing Rural and Ningbo Fangzheng 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 Chongqing Rural with a short position of Ningbo Fangzheng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Rural and Ningbo Fangzheng.

Diversification Opportunities for Chongqing Rural and Ningbo Fangzheng

-0.21

Correlation Coefficient

Chongqing Rural  Ningbo Fangzheng

Very good diversification

The 3 months correlation between Chongqing and Ningbo is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Rural Commercial and Ningbo Fangzheng Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Fangzheng Aut and Chongqing Rural 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 Chongqing Rural Commercial are associated (or correlated) with Ningbo Fangzheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Fangzheng Aut has no effect on the direction of Chongqing Rural i.e., Chongqing Rural and Ningbo Fangzheng go up and down completely randomly.

Pair Corralation between Chongqing Rural and Ningbo Fangzheng

Assuming the 90 days trading horizon Chongqing Rural Commercial is expected to generate 0.48 times more return on investment than Ningbo Fangzheng. However, Chongqing Rural Commercial is 2.07 times less risky than Ningbo Fangzheng. It trades about 0.09 of its potential returns per unit of risk. Ningbo Fangzheng Automobile is currently generating about -0.02 per unit of risk. If you would invest  334.00  in Chongqing Rural Commercial on October 11, 2024 and sell it today you would earn a total of  268.00  from holding Chongqing Rural Commercial or generate 80.24% return on investment over 90 days.

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

Chongqing Rural Commercial  vs.  Ningbo Fangzheng Automobile

Chongqing Rural Comm

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Rural Commercial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Rural may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Ningbo Fangzheng Aut

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Fangzheng Automobile are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ningbo Fangzheng is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chongqing Rural and Ningbo Fangzheng

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

The idea behind Chongqing Rural Commercial and Ningbo Fangzheng 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.