Correlation Between China Reform and Heilongjiang Transport

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

Diversification Opportunities for China Reform and Heilongjiang Transport

0.25

Correlation Coefficient

China Reform  Heilongjiang Transport

Modest diversification

The 3 months correlation between China and Heilongjiang is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding China Reform Health and Heilongjiang Transport Develop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heilongjiang Transport 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 Heilongjiang Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heilongjiang Transport has no effect on the direction of China Reform i.e., China Reform and Heilongjiang Transport go up and down completely randomly.

Pair Corralation between China Reform and Heilongjiang Transport

Assuming the 90 days trading horizon China Reform Health is expected to generate 1.32 times more return on investment than Heilongjiang Transport. However, China Reform is 1.32 times more volatile than Heilongjiang Transport Development. It trades about 0.04 of its potential returns per unit of risk. Heilongjiang Transport Development is currently generating about 0.01 per unit of risk. If you would invest  897.00  in China Reform Health on October 9, 2024 and sell it today you would earn a total of  112.00  from holding China Reform Health or generate 12.49% return on investment over 90 days.

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

China Reform Health  vs.  Heilongjiang Transport Develop

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 somewhat strong basic indicators, China Reform is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Heilongjiang Transport

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heilongjiang Transport Development are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Heilongjiang Transport is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Reform and Heilongjiang Transport

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

The idea behind China Reform Health and Heilongjiang Transport Development 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.