Correlation Between Chongqing Changan and Eastroc Beverage

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

By analyzing existing cross correlation between Chongqing Changan Automobile and Eastroc Beverage Group, you can compare the effects of market volatilities on Chongqing Changan and Eastroc Beverage 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 Changan with a short position of Eastroc Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Changan and Eastroc Beverage.

Diversification Opportunities for Chongqing Changan and Eastroc Beverage

0.81

Correlation Coefficient

Chongqing Changan  Eastroc Beverage

Very poor diversification

The 3 months correlation between Chongqing and Eastroc is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Changan Automobile and Eastroc Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastroc Beverage and Chongqing Changan 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 Changan Automobile are associated (or correlated) with Eastroc Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastroc Beverage has no effect on the direction of Chongqing Changan i.e., Chongqing Changan and Eastroc Beverage go up and down completely randomly.

Pair Corralation between Chongqing Changan and Eastroc Beverage

Assuming the 90 days trading horizon Chongqing Changan is expected to generate 1.66 times less return on investment than Eastroc Beverage. In addition to that, Chongqing Changan is 1.26 times more volatile than Eastroc Beverage Group. It trades about 0.13 of its total potential returns per unit of risk. Eastroc Beverage Group is currently generating about 0.26 per unit of volatility. If you would invest  17,043  in Eastroc Beverage Group on September 13, 2024 and sell it today you would earn a total of  7,207  from holding Eastroc Beverage Group or generate 42.29% return on investment over 90 days.

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

Chongqing Changan Automobile  vs.  Eastroc Beverage Group

Chongqing Changan

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Changan Automobile are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Changan sustained solid returns over the last few months and may actually be approaching a breakup point.

Eastroc Beverage

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eastroc Beverage Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastroc Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Changan and Eastroc Beverage

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

The idea behind Chongqing Changan Automobile and Eastroc Beverage Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.