Correlation Between China Asset and Shandong Homey

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

By analyzing existing cross correlation between China Asset Management and Shandong Homey Aquatic, you can compare the effects of market volatilities on China Asset and Shandong Homey 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 Asset with a short position of Shandong Homey. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Asset and Shandong Homey.

Diversification Opportunities for China Asset and Shandong Homey

0.16

Correlation Coefficient

China Asset  Shandong Homey

Average diversification

The 3 months correlation between China and Shandong is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Asset Management and Shandong Homey Aquatic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Homey Aquatic and China Asset 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 Asset Management are associated (or correlated) with Shandong Homey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Homey Aquatic has no effect on the direction of China Asset i.e., China Asset and Shandong Homey go up and down completely randomly.

Pair Corralation between China Asset and Shandong Homey

Assuming the 90 days trading horizon China Asset Management is expected to generate 0.25 times more return on investment than Shandong Homey. However, China Asset Management is 4.01 times less risky than Shandong Homey. It trades about 0.38 of its potential returns per unit of risk. Shandong Homey Aquatic is currently generating about -0.04 per unit of risk. If you would invest  309.00  in China Asset Management on October 6, 2024 and sell it today you would earn a total of  62.00  from holding China Asset Management or generate 20.06% return on investment over 90 days.

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

China Asset Management  vs.  Shandong Homey Aquatic

China Asset Management

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Asset sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Homey Aquatic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Homey Aquatic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Homey may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Asset and Shandong Homey

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

The idea behind China Asset Management and Shandong Homey Aquatic 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.