Correlation Between Industrial and Chengdu Kanghua

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

By analyzing existing cross correlation between Industrial and Commercial and Chengdu Kanghua Biological, you can compare the effects of market volatilities on Industrial and Chengdu Kanghua 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 Industrial with a short position of Chengdu Kanghua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Chengdu Kanghua.

Diversification Opportunities for Industrial and Chengdu Kanghua

0.42

Correlation Coefficient

Industrial  Chengdu Kanghua

Very weak diversification

The 3 months correlation between Industrial and Chengdu is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol and Industrial 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 Industrial and Commercial are associated (or correlated) with Chengdu Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of Industrial i.e., Industrial and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between Industrial and Chengdu Kanghua

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.88 times more return on investment than Chengdu Kanghua. However, Industrial and Commercial is 1.13 times less risky than Chengdu Kanghua. It trades about 0.42 of its potential returns per unit of risk. Chengdu Kanghua Biological is currently generating about 0.06 per unit of risk. If you would invest  607.00  in Industrial and Commercial on September 25, 2024 and sell it today you would earn a total of  63.00  from holding Industrial and Commercial or generate 10.38% return on investment over 90 days.

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

Industrial and Commercial  vs.  Chengdu Kanghua Biological

Industrial and Commercial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chengdu Kanghua Biol

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Kanghua Biological are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Kanghua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and Chengdu Kanghua

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

The idea behind Industrial and Commercial and Chengdu Kanghua Biological 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.