Correlation Between China Life and Central China

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

Diversification Opportunities for China Life and Central China

0.03

Correlation Coefficient

China Life  Central China

Significant diversification

The 3 months correlation between China and Central is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Central China Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central China Land 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 Central China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central China Land has no effect on the direction of China Life i.e., China Life and Central China go up and down completely randomly.

Pair Corralation between China Life and Central China

Assuming the 90 days trading horizon China Life is expected to generate 3.28 times less return on investment than Central China. But when comparing it to its historical volatility, China Life Insurance is 1.58 times less risky than Central China. It trades about 0.02 of its potential returns per unit of risk. Central China Land is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  755.00  in Central China Land on October 9, 2024 and sell it today you would earn a total of  357.00  from holding Central China Land or generate 47.28% return on investment over 90 days.

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

China Life Insurance  vs.  Central China Land

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 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.

Central China Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central China Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Life and Central China

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

The idea behind China Life Insurance and Central China Land 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.