Correlation Between China Reform and Iat Automobile

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

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

Diversification Opportunities for China Reform and Iat Automobile

0.24

Correlation Coefficient

China Reform  Iat Automobile

Modest diversification

The 3 months correlation between China and Iat is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding China Reform Health and Iat Automobile Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iat Automobile Technology and China Reform 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 Reform Health are associated (or correlated) with Iat Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iat Automobile Technology has no effect on the direction of China Reform i.e., China Reform and Iat Automobile go up and down completely randomly.

Pair Corralation between China Reform and Iat Automobile

Assuming the 90 days trading horizon China Reform Health is expected to under-perform the Iat Automobile. But the stock apears to be less risky and, when comparing its historical volatility, China Reform Health is 1.43 times less risky than Iat Automobile. The stock trades about -0.47 of its potential returns per unit of risk. The Iat Automobile Technology is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  1,335  in Iat Automobile Technology on October 11, 2024 and sell it today you would lose (219.00) from holding Iat Automobile Technology or give up 16.4% of portfolio value over 90 days.

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

China Reform Health  vs.  Iat Automobile Technology

China Reform Health

Risk-Adjusted Performance

2 of 100

Weak

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

Iat Automobile Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Iat Automobile Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Iat Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Reform and Iat Automobile

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

The idea behind China Reform Health and Iat Automobile Technology 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.