Correlation Between China BlueChemical and Cars

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

Diversification Opportunities for China BlueChemical and Cars

-0.11
  Correlation Coefficient

Good diversification

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

Pair Corralation between China BlueChemical and Cars

Assuming the 90 days horizon China BlueChemical is expected to generate 4.55 times less return on investment than Cars. In addition to that, China BlueChemical is 1.13 times more volatile than Cars Inc. It trades about 0.07 of its total potential returns per unit of risk. Cars Inc is currently generating about 0.37 per unit of volatility. If you would invest  1,460  in Cars Inc on September 1, 2024 and sell it today you would earn a total of  400.00  from holding Cars Inc or generate 27.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

China BlueChemical  vs.  Cars Inc

 Performance 
       Timeline  
China BlueChemical 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in China BlueChemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China BlueChemical reported solid returns over the last few months and may actually be approaching a breakup point.
Cars Inc 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

China BlueChemical and Cars Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China BlueChemical and Cars

The main advantage of trading using opposite China BlueChemical and Cars positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China BlueChemical position performs unexpectedly, Cars 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 Cars will offset losses from the drop in Cars' long position.
The idea behind China BlueChemical and Cars Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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