Correlation Between Chongqing Machinery and AVITA Medical

Can any of the company-specific risk be diversified away by investing in both Chongqing Machinery and AVITA Medical 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 Chongqing Machinery and AVITA Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chongqing Machinery Electric and AVITA Medical, you can compare the effects of market volatilities on Chongqing Machinery and AVITA Medical 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 Chongqing Machinery with a short position of AVITA Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Machinery and AVITA Medical.

Diversification Opportunities for Chongqing Machinery and AVITA Medical

0.58

Correlation Coefficient

Chongqing Machinery  AVITA Medical

Very weak diversification

The 3 months correlation between Chongqing and AVITA is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Machinery Electric and AVITA Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVITA Medical and Chongqing Machinery 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 Chongqing Machinery Electric are associated (or correlated) with AVITA Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVITA Medical has no effect on the direction of Chongqing Machinery i.e., Chongqing Machinery and AVITA Medical go up and down completely randomly.

Pair Corralation between Chongqing Machinery and AVITA Medical

Assuming the 90 days horizon Chongqing Machinery is expected to generate 4.63 times less return on investment than AVITA Medical. But when comparing it to its historical volatility, Chongqing Machinery Electric is 1.35 times less risky than AVITA Medical. It trades about 0.04 of its potential returns per unit of risk. AVITA Medical is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  192.00  in AVITA Medical on October 5, 2024 and sell it today you would earn a total of  64.00  from holding AVITA Medical or generate 33.33% return on investment over 90 days.

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

Chongqing Machinery Electric  vs.  AVITA Medical

Chongqing Machinery

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Chongqing Machinery Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Chongqing Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AVITA Medical

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days AVITA Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile forward-looking signals, AVITA Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Machinery and AVITA Medical

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

The idea behind Chongqing Machinery Electric and AVITA Medical 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.