Correlation Between Chongqing Brewery and Tianshui Huatian

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

By analyzing existing cross correlation between Chongqing Brewery Co and Tianshui Huatian Technology, you can compare the effects of market volatilities on Chongqing Brewery and Tianshui Huatian 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 Brewery with a short position of Tianshui Huatian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Brewery and Tianshui Huatian.

Diversification Opportunities for Chongqing Brewery and Tianshui Huatian

0.58

Correlation Coefficient

Chongqing Brewery  Tianshui Huatian

Very weak diversification

The 3 months correlation between Chongqing and Tianshui is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Brewery Co and Tianshui Huatian Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianshui Huatian Tec and Chongqing Brewery 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 Brewery Co are associated (or correlated) with Tianshui Huatian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianshui Huatian Tec has no effect on the direction of Chongqing Brewery i.e., Chongqing Brewery and Tianshui Huatian go up and down completely randomly.

Pair Corralation between Chongqing Brewery and Tianshui Huatian

Assuming the 90 days trading horizon Chongqing Brewery Co is expected to under-perform the Tianshui Huatian. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Brewery Co is 1.1 times less risky than Tianshui Huatian. The stock trades about -0.04 of its potential returns per unit of risk. The Tianshui Huatian Technology is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  875.00  in Tianshui Huatian Technology on September 25, 2024 and sell it today you would earn a total of  318.00  from holding Tianshui Huatian Technology or generate 36.34% return on investment over 90 days.

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

Chongqing Brewery Co  vs.  Tianshui Huatian Technology

Chongqing Brewery

Risk-Adjusted Performance

5 of 100

Modest

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

Tianshui Huatian Tec

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Chongqing Brewery and Tianshui Huatian

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

The idea behind Chongqing Brewery Co and Tianshui Huatian Technology 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.