Correlation Between VeriSilicon Microelectronics and ChengDu Hi-Tech

Can any of the company-specific risk be diversified away by investing in both VeriSilicon Microelectronics and ChengDu Hi-Tech 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 VeriSilicon Microelectronics and ChengDu Hi-Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VeriSilicon Microelectronics Shanghai and ChengDu Hi Tech Development, you can compare the effects of market volatilities on VeriSilicon Microelectronics and ChengDu Hi-Tech 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 VeriSilicon Microelectronics with a short position of ChengDu Hi-Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of VeriSilicon Microelectronics and ChengDu Hi-Tech.

Diversification Opportunities for VeriSilicon Microelectronics and ChengDu Hi-Tech

0.86

Correlation Coefficient

VeriSilicon Microelectronics  ChengDu Hi-Tech

Very poor diversification

The 3 months correlation between VeriSilicon and ChengDu is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding VeriSilicon Microelectronics S and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and VeriSilicon Microelectronics 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 VeriSilicon Microelectronics Shanghai are associated (or correlated) with ChengDu Hi-Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of VeriSilicon Microelectronics i.e., VeriSilicon Microelectronics and ChengDu Hi-Tech go up and down completely randomly.

Pair Corralation between VeriSilicon Microelectronics and ChengDu Hi-Tech

Assuming the 90 days trading horizon VeriSilicon Microelectronics Shanghai is expected to generate 1.28 times more return on investment than ChengDu Hi-Tech. However, VeriSilicon Microelectronics is 1.28 times more volatile than ChengDu Hi Tech Development. It trades about 0.2 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about 0.2 per unit of risk. If you would invest  2,655  in VeriSilicon Microelectronics Shanghai on August 31, 2024 and sell it today you would earn a total of  2,281  from holding VeriSilicon Microelectronics Shanghai or generate 85.91% return on investment over 90 days.

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

VeriSilicon Microelectronics S  vs.  ChengDu Hi Tech Development

VeriSilicon Microelectronics

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VeriSilicon Microelectronics Shanghai are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, VeriSilicon Microelectronics sustained solid returns over the last few months and may actually be approaching a breakup point.

ChengDu Hi Tech

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ChengDu Hi Tech Development are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ChengDu Hi-Tech sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VeriSilicon Microelectronics and ChengDu Hi-Tech

The main advantage of trading using opposite VeriSilicon Microelectronics and ChengDu Hi-Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VeriSilicon Microelectronics position performs unexpectedly, ChengDu Hi-Tech 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 Hi-Tech will offset losses from the drop in ChengDu Hi-Tech's long position.

The idea behind VeriSilicon Microelectronics Shanghai and ChengDu Hi Tech Development 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.