Correlation Between Industrial Securities and China Sports

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

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

Diversification Opportunities for Industrial Securities and China Sports

0.96

Correlation Coefficient

Industrial Securities  China Sports

Almost no diversification

The 3 months correlation between Industrial and China is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Securities Co and China Sports Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Sports Industry and Industrial Securities 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 Industrial Securities Co are associated (or correlated) with China Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Sports Industry has no effect on the direction of Industrial Securities i.e., Industrial Securities and China Sports go up and down completely randomly.

Pair Corralation between Industrial Securities and China Sports

Assuming the 90 days trading horizon Industrial Securities Co is expected to generate 1.3 times more return on investment than China Sports. However, Industrial Securities is 1.3 times more volatile than China Sports Industry. It trades about 0.14 of its potential returns per unit of risk. China Sports Industry is currently generating about 0.18 per unit of risk. If you would invest  508.00  in Industrial Securities Co on September 2, 2024 and sell it today you would earn a total of  136.00  from holding Industrial Securities Co or generate 26.77% return on investment over 90 days.

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

Industrial Securities Co  vs.  China Sports Industry

Industrial Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Securities Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

China Sports Industry

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Sports Industry are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Sports sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial Securities and China Sports

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

The idea behind Industrial Securities Co and China Sports Industry 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.