Correlation Between Sinomach Automobile and China Union

Can any of the company-specific risk be diversified away by investing in both Sinomach Automobile and China Union 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 Sinomach Automobile and China Union into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sinomach Automobile Co and China Union Holdings, you can compare the effects of market volatilities on Sinomach Automobile and China Union 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 Sinomach Automobile with a short position of China Union. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinomach Automobile and China Union.

Diversification Opportunities for Sinomach Automobile and China Union

0.77

Correlation Coefficient

Sinomach Automobile  China Union

Poor diversification

The 3 months correlation between Sinomach and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sinomach Automobile Co and China Union Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Union Holdings and Sinomach Automobile 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 Sinomach Automobile Co are associated (or correlated) with China Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Union Holdings has no effect on the direction of Sinomach Automobile i.e., Sinomach Automobile and China Union go up and down completely randomly.

Pair Corralation between Sinomach Automobile and China Union

Assuming the 90 days trading horizon Sinomach Automobile is expected to generate 1.32 times less return on investment than China Union. But when comparing it to its historical volatility, Sinomach Automobile Co is 1.37 times less risky than China Union. It trades about 0.15 of its potential returns per unit of risk. China Union Holdings is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  320.00  in China Union Holdings on September 23, 2024 and sell it today you would earn a total of  122.00  from holding China Union Holdings or generate 38.13% return on investment over 90 days.

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

Sinomach Automobile Co  vs.  China Union Holdings

Sinomach Automobile

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sinomach Automobile Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinomach Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

China Union Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Union Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Union sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sinomach Automobile and China Union

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

The idea behind Sinomach Automobile Co and China Union Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.