Correlation Between Ningbo Tip and Chongqing Changan

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

By analyzing existing cross correlation between Ningbo Tip Rubber and Chongqing Changan Automobile, you can compare the effects of market volatilities on Ningbo Tip and Chongqing Changan 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 Tip with a short position of Chongqing Changan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo Tip and Chongqing Changan.

Diversification Opportunities for Ningbo Tip and Chongqing Changan

0.84

Correlation Coefficient

Ningbo Tip  Chongqing Changan

Very poor diversification

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

Pair Corralation between Ningbo Tip and Chongqing Changan

Assuming the 90 days trading horizon Ningbo Tip Rubber is expected to generate 0.96 times more return on investment than Chongqing Changan. However, Ningbo Tip Rubber is 1.04 times less risky than Chongqing Changan. It trades about 0.22 of its potential returns per unit of risk. Chongqing Changan Automobile is currently generating about 0.13 per unit of risk. If you would invest  1,006  in Ningbo Tip Rubber on September 13, 2024 and sell it today you would earn a total of  414.00  from holding Ningbo Tip Rubber or generate 41.15% return on investment over 90 days.

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

Ningbo Tip Rubber  vs.  Chongqing Changan Automobile

Ningbo Tip Rubber

Risk-Adjusted Performance

17 of 100

Solid

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

Chongqing Changan

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Changan Automobile are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Changan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ningbo Tip and Chongqing Changan

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

The idea behind Ningbo Tip Rubber and Chongqing Changan Automobile 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.