Correlation Between ChengDu Hi and Ningbo Construction

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Can any of the company-specific risk be diversified away by investing in both ChengDu Hi and Ningbo Construction 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 ChengDu Hi and Ningbo Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ChengDu Hi Tech Development and Ningbo Construction Co, you can compare the effects of market volatilities on ChengDu Hi and Ningbo Construction 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 ChengDu Hi with a short position of Ningbo Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of ChengDu Hi and Ningbo Construction.

Diversification Opportunities for ChengDu Hi and Ningbo Construction

-0.11
  Correlation Coefficient

Good diversification

The 3 months correlation between ChengDu and Ningbo is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and Ningbo Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Construction and ChengDu Hi 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 ChengDu Hi Tech Development are associated (or correlated) with Ningbo Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Construction has no effect on the direction of ChengDu Hi i.e., ChengDu Hi and Ningbo Construction go up and down completely randomly.

Pair Corralation between ChengDu Hi and Ningbo Construction

Assuming the 90 days trading horizon ChengDu Hi Tech Development is expected to under-perform the Ningbo Construction. In addition to that, ChengDu Hi is 1.06 times more volatile than Ningbo Construction Co. It trades about -0.26 of its total potential returns per unit of risk. Ningbo Construction Co is currently generating about -0.23 per unit of volatility. If you would invest  494.00  in Ningbo Construction Co on October 12, 2024 and sell it today you would lose (78.00) from holding Ningbo Construction Co or give up 15.79% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ChengDu Hi Tech Development  vs.  Ningbo Construction Co

 Performance 
       Timeline  
ChengDu Hi Tech 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Weak
Over the last 90 days ChengDu Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ChengDu Hi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Ningbo Construction 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Construction Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ChengDu Hi and Ningbo Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ChengDu Hi and Ningbo Construction

The main advantage of trading using opposite ChengDu Hi and Ningbo Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ChengDu Hi position performs unexpectedly, Ningbo Construction 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 Ningbo Construction will offset losses from the drop in Ningbo Construction's long position.
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The idea behind ChengDu Hi Tech Development and Ningbo Construction Co 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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Check out your portfolio center.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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