Correlation Between Western Mining and Chongqing Changan

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

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

Diversification Opportunities for Western Mining and Chongqing Changan

0.53

Correlation Coefficient

Western Mining  Chongqing Changan

Very weak diversification

The 3 months correlation between Western and Chongqing is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Western Mining Co and Chongqing Changan Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Changan and Western Mining 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 Western Mining Co are associated (or correlated) with Chongqing Changan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Changan has no effect on the direction of Western Mining i.e., Western Mining and Chongqing Changan go up and down completely randomly.

Pair Corralation between Western Mining and Chongqing Changan

Assuming the 90 days trading horizon Western Mining Co is expected to under-perform the Chongqing Changan. But the stock apears to be less risky and, when comparing its historical volatility, Western Mining Co is 1.16 times less risky than Chongqing Changan. The stock trades about -0.08 of its potential returns per unit of risk. The Chongqing Changan Automobile is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,390  in Chongqing Changan Automobile on September 26, 2024 and sell it today you would earn a total of  19.00  from holding Chongqing Changan Automobile or generate 1.37% return on investment over 90 days.

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

Western Mining Co  vs.  Chongqing Changan Automobile

Western Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Mining Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Western Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chongqing Changan

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Changan Automobile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Changan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Mining and Chongqing Changan

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

The idea behind Western Mining Co and Chongqing Changan 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.