Correlation Between Sunspring Metal and China Development

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

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

Diversification Opportunities for Sunspring Metal and China Development

-0.48

Correlation Coefficient

Sunspring Metal  China Development

Very good diversification

The 3 months correlation between Sunspring and China is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sunspring Metal Corp and China Development Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Development and Sunspring Metal 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 Sunspring Metal Corp are associated (or correlated) with China Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Development has no effect on the direction of Sunspring Metal i.e., Sunspring Metal and China Development go up and down completely randomly.

Pair Corralation between Sunspring Metal and China Development

Assuming the 90 days trading horizon Sunspring Metal Corp is expected to under-perform the China Development. In addition to that, Sunspring Metal is 2.54 times more volatile than China Development Financial. It trades about -0.08 of its total potential returns per unit of risk. China Development Financial is currently generating about 0.18 per unit of volatility. If you would invest  1,600  in China Development Financial on September 14, 2024 and sell it today you would earn a total of  225.00  from holding China Development Financial or generate 14.06% return on investment over 90 days.

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

Sunspring Metal Corp  vs.  China Development Financial

Sunspring Metal Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunspring Metal Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

China Development

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Development showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunspring Metal and China Development

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

The idea behind Sunspring Metal Corp and China Development Financial 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.