Correlation Between Chongqing Rural and Xiamen Bank

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

Diversification Opportunities for Chongqing Rural and Xiamen Bank

0.38

Correlation Coefficient

Chongqing Rural  Xiamen Bank

Weak diversification

The 3 months correlation between Chongqing and Xiamen is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Rural Commercial and Xiamen Bank Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Bank 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 Xiamen Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Bank has no effect on the direction of Chongqing Rural i.e., Chongqing Rural and Xiamen Bank go up and down completely randomly.

Pair Corralation between Chongqing Rural and Xiamen Bank

Assuming the 90 days trading horizon Chongqing Rural Commercial is expected to generate 1.1 times more return on investment than Xiamen Bank. However, Chongqing Rural is 1.1 times more volatile than Xiamen Bank Co. It trades about 0.09 of its potential returns per unit of risk. Xiamen Bank Co is currently generating about 0.02 per unit of risk. If you would invest  331.00  in Chongqing Rural Commercial on October 4, 2024 and sell it today you would earn a total of  274.00  from holding Chongqing Rural Commercial or generate 82.78% return on investment over 90 days.

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

Chongqing Rural Commercial  vs.  Xiamen Bank Co

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 sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiamen Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Bank Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiamen Bank 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 Xiamen Bank

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

The idea behind Chongqing Rural Commercial and Xiamen Bank 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.