Correlation Between Gan Yuan and China Life

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

By analyzing existing cross correlation between Gan Yuan Foods and China Life Insurance, you can compare the effects of market volatilities on Gan Yuan and China Life 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 Gan Yuan with a short position of China Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gan Yuan and China Life.

Diversification Opportunities for Gan Yuan and China Life

0.49

Correlation Coefficient

Gan Yuan  China Life

Very weak diversification

The 3 months correlation between Gan and China is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Gan Yuan Foods and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and Gan Yuan 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 Gan Yuan Foods are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Gan Yuan i.e., Gan Yuan and China Life go up and down completely randomly.

Pair Corralation between Gan Yuan and China Life

Assuming the 90 days trading horizon Gan Yuan Foods is expected to under-perform the China Life. In addition to that, Gan Yuan is 1.6 times more volatile than China Life Insurance. It trades about -0.13 of its total potential returns per unit of risk. China Life Insurance is currently generating about -0.11 per unit of volatility. If you would invest  4,248  in China Life Insurance on December 24, 2024 and sell it today you would lose (494.00) from holding China Life Insurance or give up 11.63% of portfolio value over 90 days.

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

Gan Yuan Foods  vs.  China Life Insurance

Gan Yuan Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gan Yuan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

China Life Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Gan Yuan and China Life

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

The idea behind Gan Yuan Foods and China Life Insurance 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.