Correlation Between Inventec Corp and China Development

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

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

Diversification Opportunities for Inventec Corp and China Development

0.68

Correlation Coefficient

Inventec Corp  China Development

Poor diversification

The 3 months correlation between Inventec and China is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Inventec 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 Inventec Corp 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 Inventec 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 Inventec Corp i.e., Inventec Corp and China Development go up and down completely randomly.

Pair Corralation between Inventec Corp and China Development

Assuming the 90 days trading horizon Inventec Corp is expected to under-perform the China Development. In addition to that, Inventec Corp is 1.39 times more volatile than China Development Financial. It trades about -0.02 of its total potential returns per unit of risk. China Development Financial is currently generating about 0.09 per unit of volatility. If you would invest  1,490  in China Development Financial on September 27, 2024 and sell it today you would earn a total of  275.00  from holding China Development Financial or generate 18.46% return on investment over 90 days.

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

Inventec Corp  vs.  China Development Financial

Inventec Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inventec Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Inventec Corp showed solid returns over the last few months and may actually be approaching a breakup point.

China Development

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Development may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Inventec Corp and China Development

The main advantage of trading using opposite Inventec Corp and China Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inventec Corp 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 Inventec 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.