Correlation Between China Life and Henan Shuanghui

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

Diversification Opportunities for China Life and Henan Shuanghui

0.24

Correlation Coefficient

China Life  Henan Shuanghui

Modest diversification

The 3 months correlation between China and Henan is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Henan Shuanghui Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shuanghui Inve 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 Henan Shuanghui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shuanghui Inve has no effect on the direction of China Life i.e., China Life and Henan Shuanghui go up and down completely randomly.

Pair Corralation between China Life and Henan Shuanghui

Assuming the 90 days trading horizon China Life Insurance is expected to under-perform the Henan Shuanghui. In addition to that, China Life is 1.84 times more volatile than Henan Shuanghui Investment. It trades about -0.06 of its total potential returns per unit of risk. Henan Shuanghui Investment is currently generating about 0.14 per unit of volatility. If you would invest  2,522  in Henan Shuanghui Investment on October 4, 2024 and sell it today you would earn a total of  74.00  from holding Henan Shuanghui Investment or generate 2.93% 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.  Henan Shuanghui Investment

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.

Henan Shuanghui Inve

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Life Insurance and Henan Shuanghui Investment 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.