Correlation Between Sichuan Tianwei and Chengdu Kanghua

Can any of the company-specific risk be diversified away by investing in both Sichuan Tianwei and Chengdu Kanghua 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 Sichuan Tianwei and Chengdu Kanghua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sichuan Tianwei Electronic and Chengdu Kanghua Biological, you can compare the effects of market volatilities on Sichuan Tianwei and Chengdu Kanghua 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 Sichuan Tianwei with a short position of Chengdu Kanghua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Tianwei and Chengdu Kanghua.

Diversification Opportunities for Sichuan Tianwei and Chengdu Kanghua

0.79

Correlation Coefficient

Sichuan Tianwei  Chengdu Kanghua

Poor diversification

The 3 months correlation between Sichuan and Chengdu is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Tianwei Electronic and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol and Sichuan Tianwei 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 Sichuan Tianwei Electronic are associated (or correlated) with Chengdu Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of Sichuan Tianwei i.e., Sichuan Tianwei and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between Sichuan Tianwei and Chengdu Kanghua

Assuming the 90 days trading horizon Sichuan Tianwei Electronic is expected to under-perform the Chengdu Kanghua. In addition to that, Sichuan Tianwei is 2.17 times more volatile than Chengdu Kanghua Biological. It trades about -0.11 of its total potential returns per unit of risk. Chengdu Kanghua Biological is currently generating about -0.16 per unit of volatility. If you would invest  6,448  in Chengdu Kanghua Biological on October 25, 2024 and sell it today you would lose (1,339) from holding Chengdu Kanghua Biological or give up 20.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Sichuan Tianwei Electronic  vs.  Chengdu Kanghua Biological

Sichuan Tianwei Elec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sichuan Tianwei Electronic 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.

Chengdu Kanghua Biol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chengdu Kanghua Biological 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 Sichuan Tianwei and Chengdu Kanghua

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

The idea behind Sichuan Tianwei Electronic and Chengdu Kanghua Biological 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.