Correlation Between China Reform and Ningbo Boway

Can any of the company-specific risk be diversified away by investing in both China Reform and Ningbo Boway 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 Ningbo Boway 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 Ningbo Boway Alloy, you can compare the effects of market volatilities on China Reform and Ningbo Boway 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 Ningbo Boway. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Reform and Ningbo Boway.

Diversification Opportunities for China Reform and Ningbo Boway

-0.24

Correlation Coefficient

China Reform  Ningbo Boway

Very good diversification

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

Pair Corralation between China Reform and Ningbo Boway

Assuming the 90 days trading horizon China Reform is expected to generate 5.71 times less return on investment than Ningbo Boway. But when comparing it to its historical volatility, China Reform Health is 1.65 times less risky than Ningbo Boway. It trades about 0.01 of its potential returns per unit of risk. Ningbo Boway Alloy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,755  in Ningbo Boway Alloy on October 25, 2024 and sell it today you would earn a total of  281.00  from holding Ningbo Boway Alloy or generate 16.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.96%
Values	Daily Returns

China Reform Health  vs.  Ningbo Boway Alloy

China Reform Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Reform Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ningbo Boway Alloy

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Boway Alloy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Boway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Reform and Ningbo Boway

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

The idea behind China Reform Health and Ningbo Boway Alloy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.