Correlation Between China Securities and SPBVL Peru

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

Diversification Opportunities for China Securities and SPBVL Peru

0.85

Correlation Coefficient

China Securities  SPBVL Peru

Very poor diversification

The 3 months correlation between China and SPBVL is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and SPBVL Peru General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPBVL Peru General 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 SPBVL Peru. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPBVL Peru General has no effect on the direction of China Securities i.e., China Securities and SPBVL Peru go up and down completely randomly.

Pair Corralation between China Securities and SPBVL Peru

Assuming the 90 days trading horizon China Securities 800 is expected to generate 2.94 times more return on investment than SPBVL Peru. However, China Securities is 2.94 times more volatile than SPBVL Peru General. It trades about 0.14 of its potential returns per unit of risk. SPBVL Peru General is currently generating about 0.09 per unit of risk. If you would invest  353,107  in China Securities 800 on August 30, 2024 and sell it today you would earn a total of  68,474  from holding China Securities 800 or generate 19.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.08%
Values	Daily Returns

China Securities 800  vs.  SPBVL Peru General

Pair Trading with China Securities and SPBVL Peru

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

The idea behind China Securities 800 and SPBVL Peru General 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.