Correlation Between Chongqing Machinery and Choice Hotels

Can any of the company-specific risk be diversified away by investing in both Chongqing Machinery and Choice Hotels 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 Choice Hotels 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 Choice Hotels International, you can compare the effects of market volatilities on Chongqing Machinery and Choice Hotels 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 Choice Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Machinery and Choice Hotels.

Diversification Opportunities for Chongqing Machinery and Choice Hotels

-0.49

Correlation Coefficient

Chongqing Machinery  Choice Hotels

Very good diversification

The 3 months correlation between Chongqing and Choice is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Machinery Electric and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern 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 Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of Chongqing Machinery i.e., Chongqing Machinery and Choice Hotels go up and down completely randomly.

Pair Corralation between Chongqing Machinery and Choice Hotels

Assuming the 90 days horizon Chongqing Machinery Electric is expected to generate 7.15 times more return on investment than Choice Hotels. However, Chongqing Machinery is 7.15 times more volatile than Choice Hotels International. It trades about 0.1 of its potential returns per unit of risk. Choice Hotels International is currently generating about -0.1 per unit of risk. If you would invest  8.10  in Chongqing Machinery Electric on December 23, 2024 and sell it today you would earn a total of  2.90  from holding Chongqing Machinery Electric or generate 35.8% return on investment over 90 days.

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

Chongqing Machinery Electric  vs.  Choice Hotels International

Chongqing Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Machinery Electric are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chongqing Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

Choice Hotels Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Chongqing Machinery and Choice Hotels

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

The idea behind Chongqing Machinery Electric and Choice Hotels International 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.