Correlation Between China Development and Plastron Precision

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

Diversification Opportunities for China Development and Plastron Precision

0.75

Correlation Coefficient

China Development  Plastron Precision

Poor diversification

The 3 months correlation between China and Plastron is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Plastron Precision Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plastron Precision 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 Plastron Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plastron Precision has no effect on the direction of China Development i.e., China Development and Plastron Precision go up and down completely randomly.

Pair Corralation between China Development and Plastron Precision

Assuming the 90 days trading horizon China Development is expected to generate 3.83 times less return on investment than Plastron Precision. In addition to that, China Development is 1.1 times more volatile than Plastron Precision Co. It trades about 0.07 of its total potential returns per unit of risk. Plastron Precision Co is currently generating about 0.29 per unit of volatility. If you would invest  1,470  in Plastron Precision Co on December 24, 2024 and sell it today you would earn a total of  250.00  from holding Plastron Precision Co or generate 17.01% return on investment over 90 days.

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

China Development Financial  vs.  Plastron Precision Co

China Development

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 5 (%) 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.

Plastron Precision

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Plastron Precision Co are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Plastron Precision showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Development and Plastron Precision

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

The idea behind China Development Financial and Plastron Precision Co 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.