Correlation Between ChengDu Hi and Longjian Road

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

By analyzing existing cross correlation between ChengDu Hi Tech Development and Longjian Road Bridge, you can compare the effects of market volatilities on ChengDu Hi and Longjian Road 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 ChengDu Hi with a short position of Longjian Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of ChengDu Hi and Longjian Road.

Diversification Opportunities for ChengDu Hi and Longjian Road

0.63

Correlation Coefficient

ChengDu Hi  Longjian Road

Poor diversification

The 3 months correlation between ChengDu and Longjian is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and Longjian Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longjian Road Bridge and ChengDu Hi 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 ChengDu Hi Tech Development are associated (or correlated) with Longjian Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longjian Road Bridge has no effect on the direction of ChengDu Hi i.e., ChengDu Hi and Longjian Road go up and down completely randomly.

Pair Corralation between ChengDu Hi and Longjian Road

Assuming the 90 days trading horizon ChengDu Hi Tech Development is expected to generate 1.38 times more return on investment than Longjian Road. However, ChengDu Hi is 1.38 times more volatile than Longjian Road Bridge. It trades about 0.19 of its potential returns per unit of risk. Longjian Road Bridge is currently generating about 0.19 per unit of risk. If you would invest  3,977  in ChengDu Hi Tech Development on September 23, 2024 and sell it today you would earn a total of  2,344  from holding ChengDu Hi Tech Development or generate 58.94% return on investment over 90 days.

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

ChengDu Hi Tech Development  vs.  Longjian Road Bridge

ChengDu Hi Tech

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ChengDu Hi Tech Development are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ChengDu Hi sustained solid returns over the last few months and may actually be approaching a breakup point.

Longjian Road Bridge

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Longjian Road Bridge are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Longjian Road sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ChengDu Hi and Longjian Road

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

The idea behind ChengDu Hi Tech Development and Longjian Road Bridge 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.