Correlation Between Changchun Engley and North Huajin

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

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

Diversification Opportunities for Changchun Engley and North Huajin

0.77

Correlation Coefficient

Changchun Engley  North Huajin

Poor diversification

The 3 months correlation between Changchun and North is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Engley Automobile and North Huajin Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Huajin Chemical and Changchun Engley 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 Engley Automobile are associated (or correlated) with North Huajin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Huajin Chemical has no effect on the direction of Changchun Engley i.e., Changchun Engley and North Huajin go up and down completely randomly.

Pair Corralation between Changchun Engley and North Huajin

Assuming the 90 days trading horizon Changchun Engley Automobile is expected to under-perform the North Huajin. In addition to that, Changchun Engley is 1.03 times more volatile than North Huajin Chemical. It trades about -0.04 of its total potential returns per unit of risk. North Huajin Chemical is currently generating about -0.01 per unit of volatility. If you would invest  544.00  in North Huajin Chemical on October 7, 2024 and sell it today you would lose (92.00) from holding North Huajin Chemical or give up 16.91% of portfolio value over 90 days.

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

Changchun Engley Automobile  vs.  North Huajin Chemical

Changchun Engley Aut

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Changchun Engley Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

North Huajin Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Huajin Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, North Huajin 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 Engley and North Huajin

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

The idea behind Changchun Engley Automobile and North Huajin Chemical 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.