Correlation Between Weichai Power and CVD Equipment

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

By analyzing existing cross correlation between Weichai Power Co and CVD Equipment, you can compare the effects of market volatilities on Weichai Power and CVD Equipment 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 Weichai Power with a short position of CVD Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weichai Power and CVD Equipment.

Diversification Opportunities for Weichai Power and CVD Equipment

0.73

Correlation Coefficient

Weichai Power  CVD Equipment

Poor diversification

The 3 months correlation between Weichai and CVD is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Power Co and CVD Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVD Equipment and Weichai Power 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 Weichai Power Co are associated (or correlated) with CVD Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVD Equipment has no effect on the direction of Weichai Power i.e., Weichai Power and CVD Equipment go up and down completely randomly.

Pair Corralation between Weichai Power and CVD Equipment

If you would invest  291.00  in CVD Equipment on September 5, 2024 and sell it today you would earn a total of  51.00  from holding CVD Equipment or generate 17.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	4.55%
Values	Daily Returns

Weichai Power Co  vs.  CVD Equipment

Weichai Power

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Weichai Power Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile fundamental indicators, Weichai Power reported solid returns over the last few months and may actually be approaching a breakup point.

CVD Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVD Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CVD Equipment is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Weichai Power and CVD Equipment

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

The idea behind Weichai Power Co and CVD Equipment 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.