Correlation Between Carnival Industrial and China Electric

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

By analyzing existing cross correlation between Carnival Industrial Corp and China Electric Manufacturing, you can compare the effects of market volatilities on Carnival Industrial and China Electric 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 Carnival Industrial with a short position of China Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carnival Industrial and China Electric.

Diversification Opportunities for Carnival Industrial and China Electric

0.87

Correlation Coefficient

Carnival Industrial  China Electric

Very poor diversification

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

Pair Corralation between Carnival Industrial and China Electric

Assuming the 90 days trading horizon Carnival Industrial is expected to generate 1.6 times less return on investment than China Electric. But when comparing it to its historical volatility, Carnival Industrial Corp is 1.06 times less risky than China Electric. It trades about 0.26 of its potential returns per unit of risk. China Electric Manufacturing is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  1,480  in China Electric Manufacturing on December 5, 2024 and sell it today you would earn a total of  130.00  from holding China Electric Manufacturing or generate 8.78% return on investment over 90 days.

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

Carnival Industrial Corp  vs.  China Electric Manufacturing

Carnival Industrial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carnival Industrial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

China Electric Manuf

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Electric Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Carnival Industrial and China Electric

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

The idea behind Carnival Industrial Corp and China Electric Manufacturing 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.