Correlation Between Changchun High and Sihui Fuji

Can any of the company-specific risk be diversified away by investing in both Changchun High and Sihui Fuji 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 Changchun High and Sihui Fuji into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changchun High New and Sihui Fuji Electronics, you can compare the effects of market volatilities on Changchun High and Sihui Fuji 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 Changchun High with a short position of Sihui Fuji. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun High and Sihui Fuji.

Diversification Opportunities for Changchun High and Sihui Fuji

0.87

Correlation Coefficient

Changchun High  Sihui Fuji

Very poor diversification

The 3 months correlation between Changchun and Sihui is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Changchun High New and Sihui Fuji Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sihui Fuji Electronics and Changchun High 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 Changchun High New are associated (or correlated) with Sihui Fuji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sihui Fuji Electronics has no effect on the direction of Changchun High i.e., Changchun High and Sihui Fuji go up and down completely randomly.

Pair Corralation between Changchun High and Sihui Fuji

Assuming the 90 days trading horizon Changchun High is expected to generate 1.59 times less return on investment than Sihui Fuji. But when comparing it to its historical volatility, Changchun High New is 1.37 times less risky than Sihui Fuji. It trades about 0.04 of its potential returns per unit of risk. Sihui Fuji Electronics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,604  in Sihui Fuji Electronics on September 23, 2024 and sell it today you would earn a total of  316.00  from holding Sihui Fuji Electronics or generate 12.14% return on investment over 90 days.

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

Changchun High New  vs.  Sihui Fuji Electronics

Changchun High New

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun High New are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun High sustained solid returns over the last few months and may actually be approaching a breakup point.

Sihui Fuji Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sihui Fuji Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sihui Fuji sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun High and Sihui Fuji

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

The idea behind Changchun High New and Sihui Fuji Electronics 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.