Correlation Between China Vanke and Sinomach Automobile

Can any of the company-specific risk be diversified away by investing in both China Vanke and Sinomach Automobile 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 Vanke and Sinomach Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for China Vanke and Sinomach Automobile

0.81

Correlation Coefficient

China Vanke  Sinomach Automobile

Very poor diversification

The 3 months correlation between China and Sinomach is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding China Vanke Co and Sinomach Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinomach Automobile and China Vanke 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 Vanke Co are associated (or correlated) with Sinomach Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinomach Automobile has no effect on the direction of China Vanke i.e., China Vanke and Sinomach Automobile go up and down completely randomly.

Pair Corralation between China Vanke and Sinomach Automobile

Assuming the 90 days trading horizon China Vanke Co is expected to generate 1.32 times more return on investment than Sinomach Automobile. However, China Vanke is 1.32 times more volatile than Sinomach Automobile Co. It trades about 0.16 of its potential returns per unit of risk. Sinomach Automobile Co is currently generating about 0.17 per unit of risk. If you would invest  631.00  in China Vanke Co on September 11, 2024 and sell it today you would earn a total of  211.00  from holding China Vanke Co or generate 33.44% return on investment over 90 days.

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

China Vanke Co  vs.  Sinomach Automobile Co

China Vanke

Risk-Adjusted Performance

12 of 100

Good

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

Sinomach Automobile

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sinomach Automobile Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinomach Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Vanke and Sinomach Automobile

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

The idea behind China Vanke Co and Sinomach Automobile 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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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.