Correlation Between Innovative Medical and China Reform

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

By analyzing existing cross correlation between Innovative Medical Management and China Reform Health, you can compare the effects of market volatilities on Innovative Medical and China Reform 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 Innovative Medical with a short position of China Reform. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovative Medical and China Reform.

Diversification Opportunities for Innovative Medical and China Reform

0.87

Correlation Coefficient

Innovative Medical  China Reform

Very poor diversification

The 3 months correlation between Innovative and China is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Innovative Medical Management and China Reform Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reform Health and Innovative Medical 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 Innovative Medical Management are associated (or correlated) with China Reform. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reform Health has no effect on the direction of Innovative Medical i.e., Innovative Medical and China Reform go up and down completely randomly.

Pair Corralation between Innovative Medical and China Reform

Assuming the 90 days trading horizon Innovative Medical Management is expected to generate 1.2 times more return on investment than China Reform. However, Innovative Medical is 1.2 times more volatile than China Reform Health. It trades about 0.04 of its potential returns per unit of risk. China Reform Health is currently generating about -0.01 per unit of risk. If you would invest  908.00  in Innovative Medical Management on December 27, 2024 and sell it today you would earn a total of  49.00  from holding Innovative Medical Management or generate 5.4% return on investment over 90 days.

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

Innovative Medical Management  vs.  China Reform Health

Innovative Medical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innovative Medical Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Innovative Medical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Reform Health

Risk-Adjusted Performance

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.

Pair Trading with Innovative Medical and China Reform

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

The idea behind Innovative Medical Management and China Reform Health 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.