Correlation Between Cultural Investment and China Enterprise

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

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

Diversification Opportunities for Cultural Investment and China Enterprise

0.77

Correlation Coefficient

Cultural Investment  China Enterprise

Poor diversification

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

Pair Corralation between Cultural Investment and China Enterprise

Assuming the 90 days trading horizon Cultural Investment Holdings is expected to generate 1.18 times more return on investment than China Enterprise. However, Cultural Investment is 1.18 times more volatile than China Enterprise Co. It trades about -0.03 of its potential returns per unit of risk. China Enterprise Co is currently generating about -0.07 per unit of risk. If you would invest  220.00  in Cultural Investment Holdings on December 25, 2024 and sell it today you would lose (9.00) from holding Cultural Investment Holdings or give up 4.09% of portfolio value over 90 days.

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

Cultural Investment Holdings  vs.  China Enterprise Co

Cultural Investment

Risk-Adjusted Performance

Very Weak

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

China Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Enterprise Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cultural Investment and China Enterprise

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

The idea behind Cultural Investment Holdings and China Enterprise 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.