Correlation Between Gansu Yasheng and New China

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

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

Diversification Opportunities for Gansu Yasheng and New China

0.65

Correlation Coefficient

Gansu Yasheng  New China

Poor diversification

The 3 months correlation between Gansu and New is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Gansu Yasheng Industrial and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and Gansu Yasheng 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 Gansu Yasheng Industrial are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Gansu Yasheng i.e., Gansu Yasheng and New China go up and down completely randomly.

Pair Corralation between Gansu Yasheng and New China

Assuming the 90 days trading horizon Gansu Yasheng Industrial is expected to under-perform the New China. But the stock apears to be less risky and, when comparing its historical volatility, Gansu Yasheng Industrial is 1.69 times less risky than New China. The stock trades about -0.05 of its potential returns per unit of risk. The New China Life is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,199  in New China Life on December 29, 2024 and sell it today you would lose (1.00) from holding New China Life or give up 0.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Gansu Yasheng Industrial  vs.  New China Life

Gansu Yasheng Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gansu Yasheng Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Gansu Yasheng is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

New China Life

Risk-Adjusted Performance

Very Weak

Over the last 90 days New China Life has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, New China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gansu Yasheng and New China

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

The idea behind Gansu Yasheng Industrial and New China Life 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.