Correlation Between China State and Ningbo Fangzheng

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

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

Diversification Opportunities for China State and Ningbo Fangzheng

0.72

Correlation Coefficient

China State  Ningbo Fangzheng

Poor diversification

The 3 months correlation between China and Ningbo is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction 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 China State 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 China State Construction 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 China State i.e., China State and Ningbo Fangzheng go up and down completely randomly.

Pair Corralation between China State and Ningbo Fangzheng

Assuming the 90 days trading horizon China State Construction is expected to under-perform the Ningbo Fangzheng. But the stock apears to be less risky and, when comparing its historical volatility, China State Construction is 2.7 times less risky than Ningbo Fangzheng. The stock trades about -0.14 of its potential returns per unit of risk. The Ningbo Fangzheng Automobile is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,584  in Ningbo Fangzheng Automobile on September 22, 2024 and sell it today you would earn a total of  89.00  from holding Ningbo Fangzheng Automobile or generate 5.62% return on investment over 90 days.

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

China State Construction  vs.  Ningbo Fangzheng Automobile

China State Construction

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China State Construction are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China State sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningbo Fangzheng Aut

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Fangzheng Automobile are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Fangzheng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China State and Ningbo Fangzheng

The main advantage of trading using opposite China State and Ningbo Fangzheng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China State 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 China State Construction 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.