Correlation Between Ningbo Bird and Sichuan Changhong

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

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

Diversification Opportunities for Ningbo Bird and Sichuan Changhong

0.79

Correlation Coefficient

Ningbo Bird  Sichuan Changhong

Poor diversification

The 3 months correlation between Ningbo and Sichuan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Bird Co and Sichuan Changhong Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Changhong and Ningbo Bird 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 Ningbo Bird Co 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 Ningbo Bird i.e., Ningbo Bird and Sichuan Changhong go up and down completely randomly.

Pair Corralation between Ningbo Bird and Sichuan Changhong

Assuming the 90 days trading horizon Ningbo Bird is expected to generate 3.33 times less return on investment than Sichuan Changhong. But when comparing it to its historical volatility, Ningbo Bird Co is 1.21 times less risky than Sichuan Changhong. It trades about 0.07 of its potential returns per unit of risk. 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	Significant
Accuracy	100.0%
Values	Daily Returns

Ningbo Bird Co  vs.  Sichuan Changhong Electric

Ningbo Bird

Risk-Adjusted Performance

5 of 100

Modest

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

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 Ningbo Bird and Sichuan Changhong

The main advantage of trading using opposite Ningbo Bird and Sichuan Changhong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ningbo Bird 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 Ningbo Bird Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..