Correlation Between Tianjin Hi and China Minsheng

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

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

Diversification Opportunities for Tianjin Hi and China Minsheng

0.82

Correlation Coefficient

Tianjin Hi  China Minsheng

Very poor diversification

The 3 months correlation between Tianjin and China is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Hi Tech Development and China Minsheng Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Minsheng Banking and Tianjin Hi 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 Tianjin Hi Tech Development are associated (or correlated) with China Minsheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Minsheng Banking has no effect on the direction of Tianjin Hi i.e., Tianjin Hi and China Minsheng go up and down completely randomly.

Pair Corralation between Tianjin Hi and China Minsheng

Assuming the 90 days trading horizon Tianjin Hi Tech Development is expected to generate 1.82 times more return on investment than China Minsheng. However, Tianjin Hi is 1.82 times more volatile than China Minsheng Banking. It trades about 0.24 of its potential returns per unit of risk. China Minsheng Banking is currently generating about 0.14 per unit of risk. If you would invest  197.00  in Tianjin Hi Tech Development on September 4, 2024 and sell it today you would earn a total of  126.00  from holding Tianjin Hi Tech Development or generate 63.96% return on investment over 90 days.

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

Tianjin Hi Tech Development  vs.  China Minsheng Banking

Tianjin Hi Tech

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Hi Tech Development are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Hi sustained solid returns over the last few months and may actually be approaching a breakup point.

China Minsheng Banking

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Minsheng Banking are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Minsheng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tianjin Hi and China Minsheng

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

The idea behind Tianjin Hi Tech Development and China Minsheng Banking 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.