Correlation Between Qingdao Haier and Chongqing Changan

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

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

Diversification Opportunities for Qingdao Haier and Chongqing Changan

0.41

Correlation Coefficient

Qingdao Haier  Chongqing Changan

Very weak diversification

The 3 months correlation between Qingdao and Chongqing is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Qingdao Haier Biomedical and Chongqing Changan Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Changan and Qingdao Haier 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 Qingdao Haier Biomedical 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 Qingdao Haier i.e., Qingdao Haier and Chongqing Changan go up and down completely randomly.

Pair Corralation between Qingdao Haier and Chongqing Changan

Assuming the 90 days trading horizon Qingdao Haier Biomedical is expected to generate 1.21 times more return on investment than Chongqing Changan. However, Qingdao Haier is 1.21 times more volatile than Chongqing Changan Automobile. It trades about 0.18 of its potential returns per unit of risk. Chongqing Changan Automobile is currently generating about -0.31 per unit of risk. If you would invest  3,318  in Qingdao Haier Biomedical on October 8, 2024 and sell it today you would earn a total of  202.00  from holding Qingdao Haier Biomedical or generate 6.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Qingdao Haier Biomedical  vs.  Chongqing Changan Automobile

Qingdao Haier Biomedical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Qingdao Haier Biomedical 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.

Chongqing Changan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chongqing Changan Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Qingdao Haier and Chongqing Changan

The main advantage of trading using opposite Qingdao Haier and Chongqing Changan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Qingdao Haier 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 Qingdao Haier Biomedical 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.