Correlation Between New China and Semiconductor Manufacturing

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

Diversification Opportunities for New China and Semiconductor Manufacturing

0.46

Correlation Coefficient

New China  Semiconductor Manufacturing

Very weak diversification

The 3 months correlation between New and Semiconductor is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and Semiconductor Manufacturing El in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semiconductor Manufacturing 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 Semiconductor Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semiconductor Manufacturing has no effect on the direction of New China i.e., New China and Semiconductor Manufacturing go up and down completely randomly.

Pair Corralation between New China and Semiconductor Manufacturing

Assuming the 90 days trading horizon New China Life is expected to generate 1.46 times more return on investment than Semiconductor Manufacturing. However, New China is 1.46 times more volatile than Semiconductor Manufacturing Electronics. It trades about -0.27 of its potential returns per unit of risk. Semiconductor Manufacturing Electronics is currently generating about -0.71 per unit of risk. If you would invest  5,233  in New China Life on October 8, 2024 and sell it today you would lose (615.00) from holding New China Life or give up 11.75% of portfolio value over 90 days.

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

New China Life  vs.  Semiconductor Manufacturing El

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Semiconductor Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind New China Life and Semiconductor Manufacturing Electronics 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.