Correlation Between China Development and Power Wind

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

Diversification Opportunities for China Development and Power Wind

0.03

Correlation Coefficient

China Development  Power Wind

Significant diversification

The 3 months correlation between China and Power is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Power Wind Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Wind Health 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 Power Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Wind Health has no effect on the direction of China Development i.e., China Development and Power Wind go up and down completely randomly.

Pair Corralation between China Development and Power Wind

Assuming the 90 days trading horizon China Development Financial is expected to under-perform the Power Wind. In addition to that, China Development is 1.18 times more volatile than Power Wind Health. It trades about -0.18 of its total potential returns per unit of risk. Power Wind Health is currently generating about -0.1 per unit of volatility. If you would invest  11,300  in Power Wind Health on October 22, 2024 and sell it today you would lose (250.00) from holding Power Wind Health or give up 2.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

China Development Financial  vs.  Power Wind Health

China Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Development Financial has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Power Wind Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Wind Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Power Wind is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Development and Power Wind

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

The idea behind China Development Financial and Power Wind Health 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.