Correlation Between HengFeng Information and China Life

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

By analyzing existing cross correlation between HengFeng Information Technology and China Life Insurance, you can compare the effects of market volatilities on HengFeng Information and China Life 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 HengFeng Information with a short position of China Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of HengFeng Information and China Life.

Diversification Opportunities for HengFeng Information and China Life

0.89

Correlation Coefficient

HengFeng Information  China Life

Very poor diversification

The 3 months correlation between HengFeng and China is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding HengFeng Information Technolog and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and HengFeng Information 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 HengFeng Information Technology are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of HengFeng Information i.e., HengFeng Information and China Life go up and down completely randomly.

Pair Corralation between HengFeng Information and China Life

Assuming the 90 days trading horizon HengFeng Information is expected to generate 2.71 times less return on investment than China Life. In addition to that, HengFeng Information is 2.04 times more volatile than China Life Insurance. It trades about 0.02 of its total potential returns per unit of risk. China Life Insurance is currently generating about 0.09 per unit of volatility. If you would invest  2,744  in China Life Insurance on September 19, 2024 and sell it today you would earn a total of  1,411  from holding China Life Insurance or generate 51.42% return on investment over 90 days.

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

HengFeng Information Technolog  vs.  China Life Insurance

HengFeng Information

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HengFeng Information Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HengFeng Information sustained solid returns over the last few months and may actually be approaching a breakup point.

China Life Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HengFeng Information and China Life

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

The idea behind HengFeng Information Technology and China Life Insurance 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.