Correlation Between New China and Sieyuan Electric

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

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

Diversification Opportunities for New China and Sieyuan Electric

0.82

Correlation Coefficient

New China  Sieyuan Electric

Very poor diversification

The 3 months correlation between New and Sieyuan is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and Sieyuan Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sieyuan Electric and New China 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 New China Life are associated (or correlated) with Sieyuan Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sieyuan Electric has no effect on the direction of New China i.e., New China and Sieyuan Electric go up and down completely randomly.

Pair Corralation between New China and Sieyuan Electric

Assuming the 90 days trading horizon New China is expected to generate 1.01 times less return on investment than Sieyuan Electric. In addition to that, New China is 1.26 times more volatile than Sieyuan Electric Co. It trades about 0.06 of its total potential returns per unit of risk. Sieyuan Electric Co is currently generating about 0.08 per unit of volatility. If you would invest  3,855  in Sieyuan Electric Co on September 19, 2024 and sell it today you would earn a total of  3,222  from holding Sieyuan Electric Co or generate 83.58% return on investment over 90 days.

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

New China Life  vs.  Sieyuan Electric Co

New China Life

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in New China Life are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, New China sustained solid returns over the last few months and may actually be approaching a breakup point.

Sieyuan Electric

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sieyuan Electric Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sieyuan Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New China and Sieyuan Electric

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

The idea behind New China Life and Sieyuan Electric 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.