Correlation Between Yili Chuanning and Chengdu Kanghua

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

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

Diversification Opportunities for Yili Chuanning and Chengdu Kanghua

0.84

Correlation Coefficient

Yili Chuanning  Chengdu Kanghua

Very poor diversification

The 3 months correlation between Yili and Chengdu is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Yili Chuanning Biotechnology and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol and Yili Chuanning 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 Yili Chuanning Biotechnology are associated (or correlated) with Chengdu Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of Yili Chuanning i.e., Yili Chuanning and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between Yili Chuanning and Chengdu Kanghua

Assuming the 90 days trading horizon Yili Chuanning Biotechnology is expected to under-perform the Chengdu Kanghua. But the stock apears to be less risky and, when comparing its historical volatility, Yili Chuanning Biotechnology is 1.13 times less risky than Chengdu Kanghua. The stock trades about -0.26 of its potential returns per unit of risk. The Chengdu Kanghua Biological is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  6,040  in Chengdu Kanghua Biological on September 3, 2024 and sell it today you would lose (277.00) from holding Chengdu Kanghua Biological or give up 4.59% of portfolio value over 90 days.

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

Yili Chuanning Biotechnology  vs.  Chengdu Kanghua Biological

Yili Chuanning Biote

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yili Chuanning Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yili Chuanning sustained solid returns over the last few months and may actually be approaching a breakup point.

Chengdu Kanghua Biol

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Kanghua Biological are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Kanghua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yili Chuanning and Chengdu Kanghua

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

The idea behind Yili Chuanning Biotechnology and Chengdu Kanghua Biological 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.