Correlation Between Chongqing Machinery and DAIRY FARM

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

By analyzing existing cross correlation between Chongqing Machinery Electric and DAIRY FARM INTL, you can compare the effects of market volatilities on Chongqing Machinery and DAIRY FARM 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 Chongqing Machinery with a short position of DAIRY FARM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Machinery and DAIRY FARM.

Diversification Opportunities for Chongqing Machinery and DAIRY FARM

0.86

Correlation Coefficient

Chongqing Machinery  DAIRY FARM

Very poor diversification

The 3 months correlation between Chongqing and DAIRY is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Machinery Electric and DAIRY FARM INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAIRY FARM INTL and Chongqing Machinery 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 Chongqing Machinery Electric are associated (or correlated) with DAIRY FARM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAIRY FARM INTL has no effect on the direction of Chongqing Machinery i.e., Chongqing Machinery and DAIRY FARM go up and down completely randomly.

Pair Corralation between Chongqing Machinery and DAIRY FARM

Assuming the 90 days horizon Chongqing Machinery is expected to generate 1.97 times less return on investment than DAIRY FARM. In addition to that, Chongqing Machinery is 1.5 times more volatile than DAIRY FARM INTL. It trades about 0.1 of its total potential returns per unit of risk. DAIRY FARM INTL is currently generating about 0.29 per unit of volatility. If you would invest  216.00  in DAIRY FARM INTL on August 31, 2024 and sell it today you would earn a total of  20.00  from holding DAIRY FARM INTL or generate 9.26% return on investment over 90 days.

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

Chongqing Machinery Electric  vs.  DAIRY FARM INTL

Chongqing Machinery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Machinery Electric are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chongqing Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

DAIRY FARM INTL

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DAIRY FARM INTL are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, DAIRY FARM unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Machinery and DAIRY FARM

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

The idea behind Chongqing Machinery Electric and DAIRY FARM INTL 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.