Correlation Between Ping An and ChengDu Hi

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

By analyzing existing cross correlation between Ping An Insurance and ChengDu Hi Tech Development, you can compare the effects of market volatilities on Ping An and ChengDu Hi 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 Ping An with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ping An and ChengDu Hi.

Diversification Opportunities for Ping An and ChengDu Hi

0.6

Correlation Coefficient

Ping An  ChengDu Hi

Poor diversification

The 3 months correlation between Ping and ChengDu is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ping An Insurance and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and Ping An 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 Ping An Insurance are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of Ping An i.e., Ping An and ChengDu Hi go up and down completely randomly.

Pair Corralation between Ping An and ChengDu Hi

Assuming the 90 days trading horizon Ping An is expected to generate 1.17 times less return on investment than ChengDu Hi. But when comparing it to its historical volatility, Ping An Insurance is 1.86 times less risky than ChengDu Hi. It trades about 0.06 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,378  in ChengDu Hi Tech Development on October 13, 2024 and sell it today you would earn a total of  535.00  from holding ChengDu Hi Tech Development or generate 12.22% return on investment over 90 days.

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

Ping An Insurance  vs.  ChengDu Hi Tech Development

Ping An Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ping An 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.

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ping An and ChengDu Hi

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

The idea behind Ping An Insurance and ChengDu Hi Tech Development 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.