Correlation Between Sunny Loan and China Fortune

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

By analyzing existing cross correlation between Sunny Loan Top and China Fortune Land, you can compare the effects of market volatilities on Sunny Loan and China Fortune 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 Sunny Loan with a short position of China Fortune. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunny Loan and China Fortune.

Diversification Opportunities for Sunny Loan and China Fortune

0.36

Correlation Coefficient

Sunny Loan  China Fortune

Weak diversification

The 3 months correlation between Sunny and China is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Sunny Loan Top and China Fortune Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Fortune Land and Sunny Loan 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 Sunny Loan Top are associated (or correlated) with China Fortune. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Fortune Land has no effect on the direction of Sunny Loan i.e., Sunny Loan and China Fortune go up and down completely randomly.

Pair Corralation between Sunny Loan and China Fortune

Assuming the 90 days trading horizon Sunny Loan is expected to generate 1.25 times less return on investment than China Fortune. But when comparing it to its historical volatility, Sunny Loan Top is 1.13 times less risky than China Fortune. It trades about 0.05 of its potential returns per unit of risk. China Fortune Land is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  167.00  in China Fortune Land on October 9, 2024 and sell it today you would earn a total of  73.00  from holding China Fortune Land or generate 43.71% return on investment over 90 days.

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

Sunny Loan Top  vs.  China Fortune Land

Sunny Loan Top

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunny Loan Top has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

China Fortune Land

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Fortune Land are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Fortune sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunny Loan and China Fortune

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

The idea behind Sunny Loan Top and China Fortune Land 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.