Correlation Between Chongqing Road and Changsha Jingjia

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

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

Diversification Opportunities for Chongqing Road and Changsha Jingjia

0.81

Correlation Coefficient

Chongqing Road  Changsha Jingjia

Very poor diversification

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

Pair Corralation between Chongqing Road and Changsha Jingjia

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Changsha Jingjia. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Road Bridge is 1.1 times less risky than Changsha Jingjia. The stock trades about -0.12 of its potential returns per unit of risk. The Changsha Jingjia Microelectronics is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  8,225  in Changsha Jingjia Microelectronics on September 26, 2024 and sell it today you would earn a total of  2,310  from holding Changsha Jingjia Microelectronics or generate 28.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Chongqing Road Bridge  vs.  Changsha Jingjia Microelectron

Chongqing Road Bridge

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Road Bridge are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Road sustained solid returns over the last few months and may actually be approaching a breakup point.

Changsha Jingjia Mic

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Changsha Jingjia Microelectronics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changsha Jingjia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Road and Changsha Jingjia

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

The idea behind Chongqing Road Bridge and Changsha Jingjia Microelectronics 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.