Correlation Between China Sports and ZJBC Information

Can any of the company-specific risk be diversified away by investing in both China Sports and ZJBC Information 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 ZJBC Information 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 ZJBC Information Technology, you can compare the effects of market volatilities on China Sports and ZJBC Information 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 ZJBC Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Sports and ZJBC Information.

Diversification Opportunities for China Sports and ZJBC Information

0.77

Correlation Coefficient

China Sports  ZJBC Information

Poor diversification

The 3 months correlation between China and ZJBC is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Sports Industry and ZJBC Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZJBC Information Tec 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 ZJBC Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZJBC Information Tec has no effect on the direction of China Sports i.e., China Sports and ZJBC Information go up and down completely randomly.

Pair Corralation between China Sports and ZJBC Information

Assuming the 90 days trading horizon China Sports Industry is expected to generate 0.7 times more return on investment than ZJBC Information. However, China Sports Industry is 1.43 times less risky than ZJBC Information. It trades about -0.03 of its potential returns per unit of risk. ZJBC Information Technology is currently generating about -0.02 per unit of risk. If you would invest  860.00  in China Sports Industry on December 24, 2024 and sell it today you would lose (32.00) from holding China Sports Industry or give up 3.72% of portfolio value over 90 days.

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

China Sports Industry  vs.  ZJBC Information Technology

China Sports Industry

Risk-Adjusted Performance

Very Weak

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

ZJBC Information Tec

Risk-Adjusted Performance

Very Weak

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

Pair Trading with China Sports and ZJBC Information

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

The idea behind China Sports Industry and ZJBC Information Technology 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.