Correlation Between China Sports and Dezhan HealthCare

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

By analyzing existing cross correlation between China Sports Industry and Dezhan HealthCare Co, you can compare the effects of market volatilities on China Sports and Dezhan HealthCare 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 Sports with a short position of Dezhan HealthCare. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Sports and Dezhan HealthCare.

Diversification Opportunities for China Sports and Dezhan HealthCare

0.88

Correlation Coefficient

China Sports  Dezhan HealthCare

Very poor diversification

The 3 months correlation between China and Dezhan is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Sports Industry and Dezhan HealthCare Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dezhan HealthCare and China Sports 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 Sports Industry are associated (or correlated) with Dezhan HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dezhan HealthCare has no effect on the direction of China Sports i.e., China Sports and Dezhan HealthCare go up and down completely randomly.

Pair Corralation between China Sports and Dezhan HealthCare

Assuming the 90 days trading horizon China Sports is expected to generate 1.51 times less return on investment than Dezhan HealthCare. But when comparing it to its historical volatility, China Sports Industry is 1.97 times less risky than Dezhan HealthCare. It trades about 0.21 of its potential returns per unit of risk. Dezhan HealthCare Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  309.00  in Dezhan HealthCare Co on September 23, 2024 and sell it today you would earn a total of  58.00  from holding Dezhan HealthCare Co or generate 18.77% return on investment over 90 days.

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

China Sports Industry  vs.  Dezhan HealthCare Co

China Sports Industry

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Sports Industry are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Sports sustained solid returns over the last few months and may actually be approaching a breakup point.

Dezhan HealthCare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dezhan HealthCare Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dezhan HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Sports and Dezhan HealthCare

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

The idea behind China Sports Industry and Dezhan HealthCare Co 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.