Correlation Between Chongqing Shunbo and Zhejiang Huatong

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

By analyzing existing cross correlation between Chongqing Shunbo Aluminum and Zhejiang Huatong Meat, you can compare the effects of market volatilities on Chongqing Shunbo and Zhejiang Huatong 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 Shunbo with a short position of Zhejiang Huatong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Shunbo and Zhejiang Huatong.

Diversification Opportunities for Chongqing Shunbo and Zhejiang Huatong

0.81

Correlation Coefficient

Chongqing Shunbo  Zhejiang Huatong

Very poor diversification

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

Pair Corralation between Chongqing Shunbo and Zhejiang Huatong

Assuming the 90 days trading horizon Chongqing Shunbo Aluminum is expected to generate 0.78 times more return on investment than Zhejiang Huatong. However, Chongqing Shunbo Aluminum is 1.29 times less risky than Zhejiang Huatong. It trades about 0.15 of its potential returns per unit of risk. Zhejiang Huatong Meat is currently generating about 0.11 per unit of risk. If you would invest  541.00  in Chongqing Shunbo Aluminum on September 25, 2024 and sell it today you would earn a total of  145.00  from holding Chongqing Shunbo Aluminum or generate 26.8% return on investment over 90 days.

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

Chongqing Shunbo Aluminum  vs.  Zhejiang Huatong Meat

Chongqing Shunbo Aluminum

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Shunbo Aluminum are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Shunbo sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Huatong Meat

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Huatong Meat are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Huatong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Shunbo and Zhejiang Huatong

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

The idea behind Chongqing Shunbo Aluminum and Zhejiang Huatong Meat 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.