Correlation Between Chongqing Machinery and North American

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

Diversification Opportunities for Chongqing Machinery and North American

0.67

Correlation Coefficient

Chongqing Machinery  North American

Poor diversification

The 3 months correlation between Chongqing and North is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Machinery Electric and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const 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 North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Chongqing Machinery i.e., Chongqing Machinery and North American go up and down completely randomly.

Pair Corralation between Chongqing Machinery and North American

Assuming the 90 days horizon Chongqing Machinery is expected to generate 2.16 times less return on investment than North American. In addition to that, Chongqing Machinery is 1.1 times more volatile than North American Construction. It trades about 0.08 of its total potential returns per unit of risk. North American Construction is currently generating about 0.19 per unit of volatility. If you would invest  1,830  in North American Construction on October 5, 2024 and sell it today you would earn a total of  170.00  from holding North American Construction or generate 9.29% return on investment over 90 days.

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

Chongqing Machinery Electric  vs.  North American Construction

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.

North American Const

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Machinery and North American

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

The idea behind Chongqing Machinery Electric and North American Construction 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.