Correlation Between Chuangs China and CarsalesCom

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

By analyzing existing cross correlation between Chuangs China Investments and CarsalesCom, you can compare the effects of market volatilities on Chuangs China and CarsalesCom 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 Chuangs China with a short position of CarsalesCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chuangs China and CarsalesCom.

Diversification Opportunities for Chuangs China and CarsalesCom

-0.04

Correlation Coefficient

Chuangs China  CarsalesCom

Good diversification

The 3 months correlation between Chuangs and CarsalesCom is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Chuangs China Investments and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom and Chuangs China 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 Chuangs China Investments are associated (or correlated) with CarsalesCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of Chuangs China i.e., Chuangs China and CarsalesCom go up and down completely randomly.

Pair Corralation between Chuangs China and CarsalesCom

Assuming the 90 days horizon Chuangs China is expected to generate 53.95 times less return on investment than CarsalesCom. But when comparing it to its historical volatility, Chuangs China Investments is 1.67 times less risky than CarsalesCom. It trades about 0.0 of its potential returns per unit of risk. CarsalesCom is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,162  in CarsalesCom on September 12, 2024 and sell it today you would earn a total of  278.00  from holding CarsalesCom or generate 12.86% return on investment over 90 days.

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

Chuangs China Investments  vs.  CarsalesCom

Chuangs China Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chuangs China Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Chuangs China is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

CarsalesCom

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CarsalesCom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chuangs China and CarsalesCom

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

The idea behind Chuangs China Investments and CarsalesCom 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.