Correlation Between China Securities and Hainan Jinpan

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

Diversification Opportunities for China Securities and Hainan Jinpan

0.45

Correlation Coefficient

China Securities  Hainan Jinpan

Very weak diversification

The 3 months correlation between China and Hainan is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Hainan Jinpan Smart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Jinpan Smart 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 Hainan Jinpan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Jinpan Smart has no effect on the direction of China Securities i.e., China Securities and Hainan Jinpan go up and down completely randomly.

Pair Corralation between China Securities and Hainan Jinpan

Assuming the 90 days trading horizon China Securities 800 is expected to under-perform the Hainan Jinpan. But the index apears to be less risky and, when comparing its historical volatility, China Securities 800 is 4.35 times less risky than Hainan Jinpan. The index trades about -0.01 of its potential returns per unit of risk. The Hainan Jinpan Smart is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,343  in Hainan Jinpan Smart on December 26, 2024 and sell it today you would lose (182.00) from holding Hainan Jinpan Smart or give up 4.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

China Securities 800  vs.  Hainan Jinpan Smart

Pair Trading with China Securities and Hainan Jinpan

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

The idea behind China Securities 800 and Hainan Jinpan Smart 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.