Correlation Between Liaoning Chengda and Anhui Jianghuai

Can any of the company-specific risk be diversified away by investing in both Liaoning Chengda and Anhui Jianghuai 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 Liaoning Chengda and Anhui Jianghuai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liaoning Chengda Biotechnology and Anhui Jianghuai Automobile, you can compare the effects of market volatilities on Liaoning Chengda and Anhui Jianghuai 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 Liaoning Chengda with a short position of Anhui Jianghuai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Chengda and Anhui Jianghuai.

Diversification Opportunities for Liaoning Chengda and Anhui Jianghuai

0.28

Correlation Coefficient

Liaoning Chengda  Anhui Jianghuai

Modest diversification

The 3 months correlation between Liaoning and Anhui is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and Anhui Jianghuai Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Jianghuai Auto and Liaoning Chengda 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 Liaoning Chengda Biotechnology are associated (or correlated) with Anhui Jianghuai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Jianghuai Auto has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and Anhui Jianghuai go up and down completely randomly.

Pair Corralation between Liaoning Chengda and Anhui Jianghuai

Assuming the 90 days trading horizon Liaoning Chengda Biotechnology is expected to under-perform the Anhui Jianghuai. But the stock apears to be less risky and, when comparing its historical volatility, Liaoning Chengda Biotechnology is 2.97 times less risky than Anhui Jianghuai. The stock trades about -0.51 of its potential returns per unit of risk. The Anhui Jianghuai Automobile is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,504  in Anhui Jianghuai Automobile on October 9, 2024 and sell it today you would lose (4.00) from holding Anhui Jianghuai Automobile or give up 0.11% of portfolio value over 90 days.

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

Liaoning Chengda Biotechnology  vs.  Anhui Jianghuai Automobile

Liaoning Chengda Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liaoning Chengda Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Anhui Jianghuai Auto

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Liaoning Chengda and Anhui Jianghuai

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

The idea behind Liaoning Chengda Biotechnology and Anhui Jianghuai Automobile 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 Anywhere module to track or share privately all of your investments from the convenience of any device.