Correlation Between New China and Suzhou Industrial

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

Diversification Opportunities for New China and Suzhou Industrial

-0.06

Correlation Coefficient

New China  Suzhou Industrial

Good diversification

The 3 months correlation between New and Suzhou is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and Suzhou Industrial Park in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Industrial Park 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 Suzhou Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Industrial Park has no effect on the direction of New China i.e., New China and Suzhou Industrial go up and down completely randomly.

Pair Corralation between New China and Suzhou Industrial

Assuming the 90 days trading horizon New China is expected to generate 1.35 times less return on investment than Suzhou Industrial. But when comparing it to its historical volatility, New China Life is 1.71 times less risky than Suzhou Industrial. It trades about 0.01 of its potential returns per unit of risk. Suzhou Industrial Park is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  911.00  in Suzhou Industrial Park on December 25, 2024 and sell it today you would lose (21.00) from holding Suzhou Industrial Park or give up 2.31% of portfolio value over 90 days.

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

New China Life  vs.  Suzhou Industrial Park

New China Life

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New China Life are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, New China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Suzhou Industrial Park

Risk-Adjusted Performance

Very Weak

Over the last 90 days Suzhou Industrial Park has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Suzhou Industrial 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 Suzhou Industrial

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

The idea behind New China Life and Suzhou Industrial Park 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.