Correlation Between Changchun High and Ningbo Bohui

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

By analyzing existing cross correlation between Changchun High New and Ningbo Bohui Chemical, you can compare the effects of market volatilities on Changchun High and Ningbo Bohui 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 Changchun High with a short position of Ningbo Bohui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun High and Ningbo Bohui.

Diversification Opportunities for Changchun High and Ningbo Bohui

0.9

Correlation Coefficient

Changchun High  Ningbo Bohui

Almost no diversification

The 3 months correlation between Changchun and Ningbo is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Changchun High New and Ningbo Bohui Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Bohui Chemical and Changchun High 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 Changchun High New are associated (or correlated) with Ningbo Bohui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Bohui Chemical has no effect on the direction of Changchun High i.e., Changchun High and Ningbo Bohui go up and down completely randomly.

Pair Corralation between Changchun High and Ningbo Bohui

Assuming the 90 days trading horizon Changchun High is expected to generate 1.19 times less return on investment than Ningbo Bohui. But when comparing it to its historical volatility, Changchun High New is 1.17 times less risky than Ningbo Bohui. It trades about 0.17 of its potential returns per unit of risk. Ningbo Bohui Chemical is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  582.00  in Ningbo Bohui Chemical on September 13, 2024 and sell it today you would earn a total of  240.00  from holding Ningbo Bohui Chemical or generate 41.24% return on investment over 90 days.

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

Changchun High New  vs.  Ningbo Bohui Chemical

Changchun High New

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun High New are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun High sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningbo Bohui Chemical

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Bohui Chemical are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Bohui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun High and Ningbo Bohui

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

The idea behind Changchun High New and Ningbo Bohui Chemical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.