Correlation Between New China and SICC

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

Diversification Opportunities for New China and SICC

0.64

Correlation Coefficient

New China  SICC

Poor diversification

The 3 months correlation between New and SICC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and SICC Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SICC 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 SICC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SICC has no effect on the direction of New China i.e., New China and SICC go up and down completely randomly.

Pair Corralation between New China and SICC

Assuming the 90 days trading horizon New China Life is expected to under-perform the SICC. But the stock apears to be less risky and, when comparing its historical volatility, New China Life is 1.5 times less risky than SICC. The stock trades about -0.1 of its potential returns per unit of risk. The SICC Co is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,599  in SICC Co on October 23, 2024 and sell it today you would lose (178.00) from holding SICC Co or give up 3.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

New China Life  vs.  SICC Co

New China Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New China Life has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

SICC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SICC Co 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 New China and SICC

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

The idea behind New China Life and SICC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.