Correlation Between China Life and Xian International

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

By analyzing existing cross correlation between China Life Insurance and Xian International Medical, you can compare the effects of market volatilities on China Life and Xian International 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 China Life with a short position of Xian International. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Life and Xian International.

Diversification Opportunities for China Life and Xian International

0.39

Correlation Coefficient

China Life  Xian International

Weak diversification

The 3 months correlation between China and Xian is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Xian International Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xian International and China Life 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 China Life Insurance are associated (or correlated) with Xian International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xian International has no effect on the direction of China Life i.e., China Life and Xian International go up and down completely randomly.

Pair Corralation between China Life and Xian International

Assuming the 90 days trading horizon China Life Insurance is expected to generate 0.85 times more return on investment than Xian International. However, China Life Insurance is 1.18 times less risky than Xian International. It trades about 0.03 of its potential returns per unit of risk. Xian International Medical is currently generating about -0.06 per unit of risk. If you would invest  3,384  in China Life Insurance on October 5, 2024 and sell it today you would earn a total of  598.00  from holding China Life Insurance or generate 17.67% return on investment over 90 days.

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

China Life Insurance  vs.  Xian International Medical

China Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Life Insurance 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.

Xian International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xian International Medical 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.

Pair Trading with China Life and Xian International

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

The idea behind China Life Insurance and Xian International Medical 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.