Correlation Between China National and Industrial

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

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

Diversification Opportunities for China National and Industrial

0.29

Correlation Coefficient

China National  Industrial

Modest diversification

The 3 months correlation between China and Industrial is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding China National Medicines 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 National 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 National Medicines 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 National i.e., China National and Industrial go up and down completely randomly.

Pair Corralation between China National and Industrial

Assuming the 90 days trading horizon China National Medicines is expected to under-perform the Industrial. But the stock apears to be less risky and, when comparing its historical volatility, China National Medicines is 1.07 times less risky than Industrial. The stock trades about -0.25 of its potential returns per unit of risk. The Industrial and Commercial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  632.00  in Industrial and Commercial on October 10, 2024 and sell it today you would earn a total of  37.00  from holding Industrial and Commercial or generate 5.85% return on investment over 90 days.

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

China National Medicines  vs.  Industrial and Commercial

China National Medicines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China National Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China National 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

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China National and Industrial

The main advantage of trading using opposite China National and Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China National 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 National Medicines 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.