Correlation Between China Development and Capital Securities

Can any of the company-specific risk be diversified away by investing in both China Development and Capital Securities 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 Capital Securities 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 Capital Securities Corp, you can compare the effects of market volatilities on China Development and Capital Securities 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 Capital Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Capital Securities.

Diversification Opportunities for China Development and Capital Securities

0.78

Correlation Coefficient

China Development  Capital Securities

Poor diversification

The 3 months correlation between China and Capital is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Capital Securities Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Securities Corp 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 Capital Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Securities Corp has no effect on the direction of China Development i.e., China Development and Capital Securities go up and down completely randomly.

Pair Corralation between China Development and Capital Securities

Assuming the 90 days trading horizon China Development is expected to generate 1.86 times less return on investment than Capital Securities. In addition to that, China Development is 1.07 times more volatile than Capital Securities Corp. It trades about 0.1 of its total potential returns per unit of risk. Capital Securities Corp is currently generating about 0.19 per unit of volatility. If you would invest  2,165  in Capital Securities Corp on September 27, 2024 and sell it today you would earn a total of  335.00  from holding Capital Securities Corp or generate 15.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

China Development Financial  vs.  Capital Securities Corp

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.

Capital Securities Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Securities Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Capital Securities showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Development and Capital Securities

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

The idea behind China Development Financial and Capital Securities Corp 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 Stocks Directory module to find actively traded stocks across global markets.