Correlation Between Focus Home and China Overseas

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

By analyzing existing cross correlation between Focus Home Interactive and China Overseas Land, you can compare the effects of market volatilities on Focus Home and China Overseas 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 Focus Home with a short position of China Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Focus Home and China Overseas.

Diversification Opportunities for Focus Home and China Overseas

0.29

Correlation Coefficient

Focus Home  China Overseas

Modest diversification

The 3 months correlation between Focus and China is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Focus Home Interactive and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land and Focus Home 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 Focus Home Interactive are associated (or correlated) with China Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Focus Home i.e., Focus Home and China Overseas go up and down completely randomly.

Pair Corralation between Focus Home and China Overseas

Assuming the 90 days horizon Focus Home Interactive is expected to generate 1.2 times more return on investment than China Overseas. However, Focus Home is 1.2 times more volatile than China Overseas Land. It trades about 0.05 of its potential returns per unit of risk. China Overseas Land is currently generating about -0.07 per unit of risk. If you would invest  2,145  in Focus Home Interactive on October 8, 2024 and sell it today you would earn a total of  180.00  from holding Focus Home Interactive or generate 8.39% return on investment over 90 days.

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

Focus Home Interactive  vs.  China Overseas Land

Focus Home Interactive

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Focus Home Interactive are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Focus Home may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Overseas Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Overseas Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Focus Home and China Overseas

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

The idea behind Focus Home Interactive and China Overseas Land 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.