Correlation Between Chahua Modern and LianChuang Electronic

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

By analyzing existing cross correlation between Chahua Modern Housewares and LianChuang Electronic Technology, you can compare the effects of market volatilities on Chahua Modern and LianChuang Electronic 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 Chahua Modern with a short position of LianChuang Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chahua Modern and LianChuang Electronic.

Diversification Opportunities for Chahua Modern and LianChuang Electronic

0.27

Correlation Coefficient

Chahua Modern  LianChuang Electronic

Modest diversification

The 3 months correlation between Chahua and LianChuang is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Chahua Modern Housewares and LianChuang Electronic Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LianChuang Electronic and Chahua Modern 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 Chahua Modern Housewares are associated (or correlated) with LianChuang Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LianChuang Electronic has no effect on the direction of Chahua Modern i.e., Chahua Modern and LianChuang Electronic go up and down completely randomly.

Pair Corralation between Chahua Modern and LianChuang Electronic

Assuming the 90 days trading horizon Chahua Modern Housewares is expected to generate 1.13 times more return on investment than LianChuang Electronic. However, Chahua Modern is 1.13 times more volatile than LianChuang Electronic Technology. It trades about 0.05 of its potential returns per unit of risk. LianChuang Electronic Technology is currently generating about 0.01 per unit of risk. If you would invest  1,951  in Chahua Modern Housewares on October 20, 2024 and sell it today you would earn a total of  142.00  from holding Chahua Modern Housewares or generate 7.28% return on investment over 90 days.

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

Chahua Modern Housewares  vs.  LianChuang Electronic Technolo

Chahua Modern Housewares

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chahua Modern Housewares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chahua Modern may actually be approaching a critical reversion point that can send shares even higher in February 2025.

LianChuang Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Chahua Modern and LianChuang Electronic

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

The idea behind Chahua Modern Housewares and LianChuang Electronic Technology 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.