Correlation Between New China and Andon Health

Can any of the company-specific risk be diversified away by investing in both New China and Andon Health 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 Andon Health 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 Andon Health Co, you can compare the effects of market volatilities on New China and Andon Health 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 Andon Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of New China and Andon Health.

Diversification Opportunities for New China and Andon Health

0.65

Correlation Coefficient

New China  Andon Health

Poor diversification

The 3 months correlation between New and Andon is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and Andon Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Andon Health 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 Andon Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Andon Health has no effect on the direction of New China i.e., New China and Andon Health go up and down completely randomly.

Pair Corralation between New China and Andon Health

Assuming the 90 days trading horizon New China Life is expected to generate 1.33 times more return on investment than Andon Health. However, New China is 1.33 times more volatile than Andon Health Co. It trades about 0.15 of its potential returns per unit of risk. Andon Health Co is currently generating about 0.04 per unit of risk. If you would invest  3,041  in New China Life on September 23, 2024 and sell it today you would earn a total of  1,923  from holding New China Life or generate 63.24% return on investment over 90 days.

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

New China Life  vs.  Andon Health Co

New China Life

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New China Life are ranked lower than 15 (%) 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.

Andon Health

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Andon Health Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Andon Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with New China and Andon Health

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

The idea behind New China Life and Andon Health 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.