Correlation Between Changchun BCHT and Anhui Huaheng

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

Diversification Opportunities for Changchun BCHT and Anhui Huaheng

0.89

Correlation Coefficient

Changchun BCHT  Anhui Huaheng

Very poor diversification

The 3 months correlation between Changchun and Anhui is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Changchun BCHT Biotechnology and Anhui Huaheng Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Huaheng Biotec 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 Anhui Huaheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Huaheng Biotec has no effect on the direction of Changchun BCHT i.e., Changchun BCHT and Anhui Huaheng go up and down completely randomly.

Pair Corralation between Changchun BCHT and Anhui Huaheng

Assuming the 90 days trading horizon Changchun BCHT Biotechnology is expected to generate 0.72 times more return on investment than Anhui Huaheng. However, Changchun BCHT Biotechnology is 1.4 times less risky than Anhui Huaheng. It trades about -0.22 of its potential returns per unit of risk. Anhui Huaheng Biotechnology is currently generating about -0.18 per unit of risk. If you would invest  3,500  in Changchun BCHT Biotechnology on October 7, 2024 and sell it today you would lose (1,134) from holding Changchun BCHT Biotechnology or give up 32.4% of portfolio value over 90 days.

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

Changchun BCHT Biotechnology  vs.  Anhui Huaheng Biotechnology

Changchun BCHT Biote

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Changchun BCHT Biotechnology 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.

Anhui Huaheng Biotec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anhui Huaheng Biotechnology 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 Changchun BCHT and Anhui Huaheng

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

The idea behind Changchun BCHT Biotechnology and Anhui Huaheng Biotechnology 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.