Correlation Between Dazhong Transportation and Chengdu Xinzhu

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

By analyzing existing cross correlation between Dazhong Transportation Group and Chengdu Xinzhu RoadBridge, you can compare the effects of market volatilities on Dazhong Transportation and Chengdu Xinzhu 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 Dazhong Transportation with a short position of Chengdu Xinzhu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dazhong Transportation and Chengdu Xinzhu.

Diversification Opportunities for Dazhong Transportation and Chengdu Xinzhu

0.87

Correlation Coefficient

Dazhong Transportation  Chengdu Xinzhu

Very poor diversification

The 3 months correlation between Dazhong and Chengdu is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Chengdu Xinzhu RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xinzhu RoadBridge and Dazhong Transportation 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 Dazhong Transportation Group are associated (or correlated) with Chengdu Xinzhu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xinzhu RoadBridge has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Chengdu Xinzhu go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Chengdu Xinzhu

Assuming the 90 days trading horizon Dazhong Transportation is expected to generate 1.3 times less return on investment than Chengdu Xinzhu. But when comparing it to its historical volatility, Dazhong Transportation Group is 1.06 times less risky than Chengdu Xinzhu. It trades about 0.15 of its potential returns per unit of risk. Chengdu Xinzhu RoadBridge is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  368.00  in Chengdu Xinzhu RoadBridge on September 5, 2024 and sell it today you would earn a total of  152.00  from holding Chengdu Xinzhu RoadBridge or generate 41.3% return on investment over 90 days.

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

Dazhong Transportation Group  vs.  Chengdu Xinzhu RoadBridge

Dazhong Transportation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dazhong Transportation Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dazhong Transportation sustained solid returns over the last few months and may actually be approaching a breakup point.

Chengdu Xinzhu RoadBridge

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xinzhu RoadBridge are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xinzhu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dazhong Transportation and Chengdu Xinzhu

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

The idea behind Dazhong Transportation Group and Chengdu Xinzhu RoadBridge 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.