Correlation Between China Sports and Advanced Technology

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

Diversification Opportunities for China Sports and Advanced Technology

0.72

Correlation Coefficient

China Sports  Advanced Technology

Poor diversification

The 3 months correlation between China and Advanced is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding China Sports Industry and Advanced Technology Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Technology 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 Advanced Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Technology has no effect on the direction of China Sports i.e., China Sports and Advanced Technology go up and down completely randomly.

Pair Corralation between China Sports and Advanced Technology

Assuming the 90 days trading horizon China Sports is expected to generate 3.24 times less return on investment than Advanced Technology. But when comparing it to its historical volatility, China Sports Industry is 1.01 times less risky than Advanced Technology. It trades about 0.01 of its potential returns per unit of risk. Advanced Technology Materials is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  800.00  in Advanced Technology Materials on September 28, 2024 and sell it today you would earn a total of  336.00  from holding Advanced Technology Materials or generate 42.0% return on investment over 90 days.

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

China Sports Industry  vs.  Advanced Technology Materials

China Sports Industry

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Sports Industry are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Sports may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Advanced Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Technology Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Advanced Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Sports and Advanced Technology

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

The idea behind China Sports Industry and Advanced Technology Materials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.