Correlation Between Chahua Modern and Weichai Heavy

Can any of the company-specific risk be diversified away by investing in both Chahua Modern and Weichai Heavy 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 Chahua Modern and Weichai Heavy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chahua Modern Housewares and Weichai Heavy Machinery, you can compare the effects of market volatilities on Chahua Modern and Weichai Heavy 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 Chahua Modern with a short position of Weichai Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chahua Modern and Weichai Heavy.

Diversification Opportunities for Chahua Modern and Weichai Heavy

0.84

Correlation Coefficient

Chahua Modern  Weichai Heavy

Very poor diversification

The 3 months correlation between Chahua and Weichai is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Chahua Modern Housewares and Weichai Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weichai Heavy Machinery and Chahua Modern 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 Chahua Modern Housewares are associated (or correlated) with Weichai Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weichai Heavy Machinery has no effect on the direction of Chahua Modern i.e., Chahua Modern and Weichai Heavy go up and down completely randomly.

Pair Corralation between Chahua Modern and Weichai Heavy

Assuming the 90 days trading horizon Chahua Modern Housewares is expected to generate 0.98 times more return on investment than Weichai Heavy. However, Chahua Modern Housewares is 1.02 times less risky than Weichai Heavy. It trades about 0.23 of its potential returns per unit of risk. Weichai Heavy Machinery is currently generating about 0.19 per unit of risk. If you would invest  1,352  in Chahua Modern Housewares on September 25, 2024 and sell it today you would earn a total of  955.00  from holding Chahua Modern Housewares or generate 70.64% return on investment over 90 days.

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

Chahua Modern Housewares  vs.  Weichai Heavy Machinery

Chahua Modern Housewares

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chahua Modern Housewares are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chahua Modern sustained solid returns over the last few months and may actually be approaching a breakup point.

Weichai Heavy Machinery

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weichai Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chahua Modern and Weichai Heavy

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

The idea behind Chahua Modern Housewares and Weichai Heavy Machinery 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.