Correlation Between Wuhan Yangtze and Tongyu Communication

Can any of the company-specific risk be diversified away by investing in both Wuhan Yangtze and Tongyu Communication 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 Wuhan Yangtze and Tongyu Communication into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wuhan Yangtze Communication and Tongyu Communication, you can compare the effects of market volatilities on Wuhan Yangtze and Tongyu Communication 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 Wuhan Yangtze with a short position of Tongyu Communication. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuhan Yangtze and Tongyu Communication.

Diversification Opportunities for Wuhan Yangtze and Tongyu Communication

0.95

Correlation Coefficient

Wuhan Yangtze  Tongyu Communication

Almost no diversification

The 3 months correlation between Wuhan and Tongyu is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Yangtze Communication and Tongyu Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongyu Communication and Wuhan Yangtze 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 Wuhan Yangtze Communication are associated (or correlated) with Tongyu Communication. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongyu Communication has no effect on the direction of Wuhan Yangtze i.e., Wuhan Yangtze and Tongyu Communication go up and down completely randomly.

Pair Corralation between Wuhan Yangtze and Tongyu Communication

Assuming the 90 days trading horizon Wuhan Yangtze Communication is expected to generate 1.15 times more return on investment than Tongyu Communication. However, Wuhan Yangtze is 1.15 times more volatile than Tongyu Communication. It trades about 0.26 of its potential returns per unit of risk. Tongyu Communication is currently generating about 0.23 per unit of risk. If you would invest  1,511  in Wuhan Yangtze Communication on August 31, 2024 and sell it today you would earn a total of  1,338  from holding Wuhan Yangtze Communication or generate 88.55% return on investment over 90 days.

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

Wuhan Yangtze Communication  vs.  Tongyu Communication

Wuhan Yangtze Commun

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Yangtze Communication are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Yangtze sustained solid returns over the last few months and may actually be approaching a breakup point.

Tongyu Communication

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tongyu Communication are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongyu Communication sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wuhan Yangtze and Tongyu Communication

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

The idea behind Wuhan Yangtze Communication and Tongyu Communication 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.