Correlation Between Tianjin Capital and Central China

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

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

Diversification Opportunities for Tianjin Capital and Central China

0.71

Correlation Coefficient

Tianjin Capital  Central China

Poor diversification

The 3 months correlation between Tianjin and Central is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Capital Environmental and Central China Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central China Land and Tianjin Capital 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 Tianjin Capital Environmental are associated (or correlated) with Central China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central China Land has no effect on the direction of Tianjin Capital i.e., Tianjin Capital and Central China go up and down completely randomly.

Pair Corralation between Tianjin Capital and Central China

Assuming the 90 days trading horizon Tianjin Capital Environmental is expected to under-perform the Central China. But the stock apears to be less risky and, when comparing its historical volatility, Tianjin Capital Environmental is 1.71 times less risky than Central China. The stock trades about -0.11 of its potential returns per unit of risk. The Central China Land is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,115  in Central China Land on December 2, 2024 and sell it today you would lose (48.00) from holding Central China Land or give up 4.3% of portfolio value over 90 days.

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

Tianjin Capital Environmental  vs.  Central China Land

Tianjin Capital Envi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianjin Capital Environmental 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.

Central China Land

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Tianjin Capital and Central China

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

The idea behind Tianjin Capital Environmental and Central China 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.