Correlation Between China Securities and Bosera CMSK

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

Diversification Opportunities for China Securities and Bosera CMSK

-0.68

Correlation Coefficient

China Securities  Bosera CMSK

Excellent diversification

The 3 months correlation between China and Bosera is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Bosera CMSK Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bosera CMSK Industrial 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 Bosera CMSK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bosera CMSK Industrial has no effect on the direction of China Securities i.e., China Securities and Bosera CMSK go up and down completely randomly.

Pair Corralation between China Securities and Bosera CMSK

Assuming the 90 days trading horizon China Securities 800 is expected to under-perform the Bosera CMSK. In addition to that, China Securities is 1.42 times more volatile than Bosera CMSK Industrial. It trades about -0.03 of its total potential returns per unit of risk. Bosera CMSK Industrial is currently generating about 0.2 per unit of volatility. If you would invest  195.00  in Bosera CMSK Industrial on October 22, 2024 and sell it today you would earn a total of  22.00  from holding Bosera CMSK Industrial or generate 11.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

China Securities 800  vs.  Bosera CMSK Industrial

Pair Trading with China Securities and Bosera CMSK

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

The idea behind China Securities 800 and Bosera CMSK Industrial 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.