Correlation Between Changchun BCHT and Sunwoda Electronic

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

By analyzing existing cross correlation between Changchun BCHT Biotechnology and Sunwoda Electronic, you can compare the effects of market volatilities on Changchun BCHT and Sunwoda 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 Changchun BCHT with a short position of Sunwoda Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun BCHT and Sunwoda Electronic.

Diversification Opportunities for Changchun BCHT and Sunwoda Electronic

0.8

Correlation Coefficient

Changchun BCHT  Sunwoda Electronic

Very poor diversification

The 3 months correlation between Changchun and Sunwoda is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Changchun BCHT Biotechnology and Sunwoda Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunwoda Electronic and Changchun BCHT 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 BCHT Biotechnology are associated (or correlated) with Sunwoda Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunwoda Electronic has no effect on the direction of Changchun BCHT i.e., Changchun BCHT and Sunwoda Electronic go up and down completely randomly.

Pair Corralation between Changchun BCHT and Sunwoda Electronic

Assuming the 90 days trading horizon Changchun BCHT is expected to generate 1.96 times less return on investment than Sunwoda Electronic. But when comparing it to its historical volatility, Changchun BCHT Biotechnology is 1.19 times less risky than Sunwoda Electronic. It trades about 0.1 of its potential returns per unit of risk. Sunwoda Electronic is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,550  in Sunwoda Electronic on September 22, 2024 and sell it today you would earn a total of  775.00  from holding Sunwoda Electronic or generate 50.0% return on investment over 90 days.

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

Changchun BCHT Biotechnology  vs.  Sunwoda Electronic

Changchun BCHT Biote

Risk-Adjusted Performance

7 of 100

OK

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

Sunwoda Electronic

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunwoda Electronic are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sunwoda Electronic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun BCHT and Sunwoda Electronic

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

The idea behind Changchun BCHT Biotechnology and Sunwoda Electronic 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.