Correlation Between China World and China Animal

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

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

Diversification Opportunities for China World and China Animal

0.25

Correlation Coefficient

China World  China Animal

Modest diversification

The 3 months correlation between China and China is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and China Animal Husbandry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Animal Husbandry and China World 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 World Trade are associated (or correlated) with China Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Animal Husbandry has no effect on the direction of China World i.e., China World and China Animal go up and down completely randomly.

Pair Corralation between China World and China Animal

Assuming the 90 days trading horizon China World Trade is expected to under-perform the China Animal. But the stock apears to be less risky and, when comparing its historical volatility, China World Trade is 1.1 times less risky than China Animal. The stock trades about -0.1 of its potential returns per unit of risk. The China Animal Husbandry is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  694.00  in China Animal Husbandry on December 24, 2024 and sell it today you would lose (45.00) from holding China Animal Husbandry or give up 6.48% of portfolio value over 90 days.

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

China World Trade  vs.  China Animal Husbandry

China World Trade

Risk-Adjusted Performance

Very Weak

Over the last 90 days China World Trade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Animal Husbandry

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Animal Husbandry has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China World and China Animal

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

The idea behind China World Trade and China Animal Husbandry 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.