Correlation Between Changchun BCHT and Western Mining

Can any of the company-specific risk be diversified away by investing in both Changchun BCHT and Western Mining 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 Western Mining 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 Western Mining Co, you can compare the effects of market volatilities on Changchun BCHT and Western Mining 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 Western Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun BCHT and Western Mining.

Diversification Opportunities for Changchun BCHT and Western Mining

0.76

Correlation Coefficient

Changchun BCHT  Western Mining

Poor diversification

The 3 months correlation between Changchun and Western is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Changchun BCHT Biotechnology and Western Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Mining 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 Western Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Mining has no effect on the direction of Changchun BCHT i.e., Changchun BCHT and Western Mining go up and down completely randomly.

Pair Corralation between Changchun BCHT and Western Mining

Assuming the 90 days trading horizon Changchun BCHT Biotechnology is expected to generate 1.27 times more return on investment than Western Mining. However, Changchun BCHT is 1.27 times more volatile than Western Mining Co. It trades about -0.05 of its potential returns per unit of risk. Western Mining Co is currently generating about -0.23 per unit of risk. If you would invest  2,693  in Changchun BCHT Biotechnology on September 20, 2024 and sell it today you would lose (58.00) from holding Changchun BCHT Biotechnology or give up 2.15% of portfolio value over 90 days.

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

Changchun BCHT Biotechnology  vs.  Western Mining Co

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.

Western Mining

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Mining Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Western Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Changchun BCHT and Western Mining

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

The idea behind Changchun BCHT Biotechnology and Western Mining Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.