Correlation Between IBF Financial and China Development

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

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

Diversification Opportunities for IBF Financial and China Development

-0.48

Correlation Coefficient

IBF Financial  China Development

Very good diversification

The 3 months correlation between IBF and China is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding IBF Financial Holdings and China Development Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Development and IBF Financial 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 IBF Financial Holdings 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 IBF Financial i.e., IBF Financial and China Development go up and down completely randomly.

Pair Corralation between IBF Financial and China Development

Assuming the 90 days trading horizon IBF Financial Holdings is expected to under-perform the China Development. But the stock apears to be less risky and, when comparing its historical volatility, IBF Financial Holdings is 1.19 times less risky than China Development. The stock trades about -0.28 of its potential returns per unit of risk. The China Development Financial is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,730  in China Development Financial on December 28, 2024 and sell it today you would earn a total of  95.00  from holding China Development Financial or generate 5.49% return on investment over 90 days.

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

IBF Financial Holdings  vs.  China Development Financial

IBF Financial Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days IBF Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

China Development

Risk-Adjusted Performance

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 April 2025.

Pair Trading with IBF Financial and China Development

The main advantage of trading using opposite IBF Financial and China Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBF Financial 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 IBF Financial Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.