Correlation Between Shaanxi Construction and China Life

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

By analyzing existing cross correlation between Shaanxi Construction Machinery and China Life Insurance, you can compare the effects of market volatilities on Shaanxi Construction and China Life 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 Shaanxi Construction with a short position of China Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shaanxi Construction and China Life.

Diversification Opportunities for Shaanxi Construction and China Life

0.21

Correlation Coefficient

Shaanxi Construction  China Life

Modest diversification

The 3 months correlation between Shaanxi and China is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Construction Machinery and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and Shaanxi Construction 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 Shaanxi Construction Machinery are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Shaanxi Construction i.e., Shaanxi Construction and China Life go up and down completely randomly.

Pair Corralation between Shaanxi Construction and China Life

Assuming the 90 days trading horizon Shaanxi Construction Machinery is expected to under-perform the China Life. In addition to that, Shaanxi Construction is 2.05 times more volatile than China Life Insurance. It trades about -0.14 of its total potential returns per unit of risk. China Life Insurance is currently generating about -0.15 per unit of volatility. If you would invest  4,214  in China Life Insurance on October 6, 2024 and sell it today you would lose (282.00) from holding China Life Insurance or give up 6.69% of portfolio value over 90 days.

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

Shaanxi Construction Machinery  vs.  China Life Insurance

Shaanxi Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Life Insurance 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.

Pair Trading with Shaanxi Construction and China Life

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

The idea behind Shaanxi Construction Machinery and China Life Insurance 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.