Correlation Between Chengdu Kanghua and Sichuan Changhong

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

By analyzing existing cross correlation between Chengdu Kanghua Biological and Sichuan Changhong Electric, you can compare the effects of market volatilities on Chengdu Kanghua and Sichuan Changhong 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 Kanghua with a short position of Sichuan Changhong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chengdu Kanghua and Sichuan Changhong.

Diversification Opportunities for Chengdu Kanghua and Sichuan Changhong

0.2

Correlation Coefficient

Chengdu Kanghua  Sichuan Changhong

Modest diversification

The 3 months correlation between Chengdu and Sichuan is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Kanghua Biological and Sichuan Changhong Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Changhong and Chengdu Kanghua 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 Kanghua Biological are associated (or correlated) with Sichuan Changhong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Changhong has no effect on the direction of Chengdu Kanghua i.e., Chengdu Kanghua and Sichuan Changhong go up and down completely randomly.

Pair Corralation between Chengdu Kanghua and Sichuan Changhong

Assuming the 90 days trading horizon Chengdu Kanghua Biological is expected to under-perform the Sichuan Changhong. But the stock apears to be less risky and, when comparing its historical volatility, Chengdu Kanghua Biological is 1.52 times less risky than Sichuan Changhong. The stock trades about -0.03 of its potential returns per unit of risk. The Sichuan Changhong Electric is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  591.00  in Sichuan Changhong Electric on September 29, 2024 and sell it today you would earn a total of  487.00  from holding Sichuan Changhong Electric or generate 82.4% return on investment over 90 days.

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

Chengdu Kanghua Biological  vs.  Sichuan Changhong Electric

Chengdu Kanghua Biol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chengdu Kanghua Biological has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sichuan Changhong

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Changhong Electric are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Changhong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chengdu Kanghua and Sichuan Changhong

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

The idea behind Chengdu Kanghua Biological and Sichuan Changhong Electric 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.