Correlation Between China Animal and Industrial

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

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

Diversification Opportunities for China Animal and Industrial

-0.04

Correlation Coefficient

China Animal  Industrial

Good diversification

The 3 months correlation between China and Industrial is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding China Animal Husbandry and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial and China Animal 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 Animal Husbandry are associated (or correlated) with Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of China Animal i.e., China Animal and Industrial go up and down completely randomly.

Pair Corralation between China Animal and Industrial

Assuming the 90 days trading horizon China Animal Husbandry is expected to generate 1.26 times more return on investment than Industrial. However, China Animal is 1.26 times more volatile than Industrial and Commercial. It trades about -0.01 of its potential returns per unit of risk. Industrial and Commercial is currently generating about -0.01 per unit of risk. If you would invest  702.00  in China Animal Husbandry on December 27, 2024 and sell it today you would lose (9.00) from holding China Animal Husbandry or give up 1.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

China Animal Husbandry  vs.  Industrial and Commercial

China Animal Husbandry

Risk-Adjusted Performance

Very Weak

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

Industrial and Commercial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Industrial and Commercial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Industrial 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 Animal and Industrial

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

The idea behind China Animal Husbandry and Industrial and Commercial 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.