Correlation Between VeriSilicon Microelectronics and Chengdu Xingrong

Can any of the company-specific risk be diversified away by investing in both VeriSilicon Microelectronics and Chengdu Xingrong 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 VeriSilicon Microelectronics and Chengdu Xingrong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VeriSilicon Microelectronics Shanghai and Chengdu Xingrong Investment, you can compare the effects of market volatilities on VeriSilicon Microelectronics and Chengdu Xingrong 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 VeriSilicon Microelectronics with a short position of Chengdu Xingrong. Check out your portfolio center. Please also check ongoing floating volatility patterns of VeriSilicon Microelectronics and Chengdu Xingrong.

Diversification Opportunities for VeriSilicon Microelectronics and Chengdu Xingrong

0.8

Correlation Coefficient

VeriSilicon Microelectronics  Chengdu Xingrong

Very poor diversification

The 3 months correlation between VeriSilicon and Chengdu is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding VeriSilicon Microelectronics S and Chengdu Xingrong Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xingrong Inv and VeriSilicon Microelectronics 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 VeriSilicon Microelectronics Shanghai are associated (or correlated) with Chengdu Xingrong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xingrong Inv has no effect on the direction of VeriSilicon Microelectronics i.e., VeriSilicon Microelectronics and Chengdu Xingrong go up and down completely randomly.

Pair Corralation between VeriSilicon Microelectronics and Chengdu Xingrong

Assuming the 90 days trading horizon VeriSilicon Microelectronics Shanghai is expected to generate 2.39 times more return on investment than Chengdu Xingrong. However, VeriSilicon Microelectronics is 2.39 times more volatile than Chengdu Xingrong Investment. It trades about 0.21 of its potential returns per unit of risk. Chengdu Xingrong Investment is currently generating about 0.09 per unit of risk. If you would invest  2,638  in VeriSilicon Microelectronics Shanghai on September 12, 2024 and sell it today you would earn a total of  2,354  from holding VeriSilicon Microelectronics Shanghai or generate 89.23% return on investment over 90 days.

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

VeriSilicon Microelectronics S  vs.  Chengdu Xingrong Investment

VeriSilicon Microelectronics

Risk-Adjusted Performance

16 of 100

Good

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

Chengdu Xingrong Inv

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xingrong Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xingrong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VeriSilicon Microelectronics and Chengdu Xingrong

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

The idea behind VeriSilicon Microelectronics Shanghai and Chengdu Xingrong Investment 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.