Correlation Between China Development and Kingstate Electronics

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

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

Diversification Opportunities for China Development and Kingstate Electronics

-0.63

Correlation Coefficient

China Development  Kingstate Electronics

Excellent diversification

The 3 months correlation between China and Kingstate is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Kingstate Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingstate Electronics and China Development 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 China Development Financial are associated (or correlated) with Kingstate Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingstate Electronics has no effect on the direction of China Development i.e., China Development and Kingstate Electronics go up and down completely randomly.

Pair Corralation between China Development and Kingstate Electronics

Assuming the 90 days trading horizon China Development is expected to generate 1.46 times less return on investment than Kingstate Electronics. But when comparing it to its historical volatility, China Development Financial is 1.35 times less risky than Kingstate Electronics. It trades about 0.05 of its potential returns per unit of risk. Kingstate Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,885  in Kingstate Electronics on October 11, 2024 and sell it today you would earn a total of  1,385  from holding Kingstate Electronics or generate 48.01% return on investment over 90 days.

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

China Development Financial  vs.  Kingstate Electronics

China Development

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Development is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kingstate Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kingstate Electronics 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 China Development and Kingstate Electronics

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

The idea behind China Development Financial and Kingstate Electronics 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.