Correlation Between ChengDu Hi-Tech and China International

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Can any of the company-specific risk be diversified away by investing in both ChengDu Hi-Tech and China International 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-Tech and China International 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 China International Travel, you can compare the effects of market volatilities on ChengDu Hi-Tech and China International 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-Tech with a short position of China International. Check out your portfolio center. Please also check ongoing floating volatility patterns of ChengDu Hi-Tech and China International.

Diversification Opportunities for ChengDu Hi-Tech and China International

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between ChengDu and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and China International Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China International and ChengDu Hi-Tech 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 China International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China International has no effect on the direction of ChengDu Hi-Tech i.e., ChengDu Hi-Tech and China International go up and down completely randomly.

Pair Corralation between ChengDu Hi-Tech and China International

Assuming the 90 days trading horizon ChengDu Hi Tech Development is expected to under-perform the China International. In addition to that, ChengDu Hi-Tech is 1.78 times more volatile than China International Travel. It trades about -0.22 of its total potential returns per unit of risk. China International Travel is currently generating about 0.06 per unit of volatility. If you would invest  6,783  in China International Travel on September 1, 2024 and sell it today you would earn a total of  172.00  from holding China International Travel or generate 2.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

ChengDu Hi Tech Development  vs.  China International Travel

 Performance 
       Timeline  
ChengDu Hi Tech 

Risk-Adjusted Performance

16 of 100

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

Risk-Adjusted Performance

7 of 100

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

ChengDu Hi-Tech and China International Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ChengDu Hi-Tech and China International

The main advantage of trading using opposite ChengDu Hi-Tech and China International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ChengDu Hi-Tech position performs unexpectedly, China International 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 China International will offset losses from the drop in China International's long position.
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The idea behind ChengDu Hi Tech Development and China International Travel 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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