Correlation Between China Securities and Tianjin Yiyi

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

By analyzing existing cross correlation between China Securities 800 and Tianjin Yiyi Hygiene, you can compare the effects of market volatilities on China Securities and Tianjin Yiyi 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 Securities with a short position of Tianjin Yiyi. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and Tianjin Yiyi.

Diversification Opportunities for China Securities and Tianjin Yiyi

-0.46

Correlation Coefficient

China Securities  Tianjin Yiyi

Very good diversification

The 3 months correlation between China and Tianjin is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Tianjin Yiyi Hygiene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Yiyi Hygiene and China Securities 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 Securities 800 are associated (or correlated) with Tianjin Yiyi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Yiyi Hygiene has no effect on the direction of China Securities i.e., China Securities and Tianjin Yiyi go up and down completely randomly.

Pair Corralation between China Securities and Tianjin Yiyi

Assuming the 90 days trading horizon China Securities 800 is expected to under-perform the Tianjin Yiyi. But the index apears to be less risky and, when comparing its historical volatility, China Securities 800 is 2.86 times less risky than Tianjin Yiyi. The index trades about -0.11 of its potential returns per unit of risk. The Tianjin Yiyi Hygiene is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  1,640  in Tianjin Yiyi Hygiene on October 23, 2024 and sell it today you would earn a total of  580.00  from holding Tianjin Yiyi Hygiene or generate 35.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

China Securities 800  vs.  Tianjin Yiyi Hygiene

Pair Trading with China Securities and Tianjin Yiyi

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

The idea behind China Securities 800 and Tianjin Yiyi Hygiene 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.