Correlation Between China Life and Wangneng Environment

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

Diversification Opportunities for China Life and Wangneng Environment

0.28

Correlation Coefficient

China Life  Wangneng Environment

Modest diversification

The 3 months correlation between China and Wangneng is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Wangneng Environment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wangneng Environment 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 Wangneng Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wangneng Environment has no effect on the direction of China Life i.e., China Life and Wangneng Environment go up and down completely randomly.

Pair Corralation between China Life and Wangneng Environment

Assuming the 90 days trading horizon China Life is expected to generate 1.85 times less return on investment than Wangneng Environment. In addition to that, China Life is 1.18 times more volatile than Wangneng Environment Co. It trades about 0.05 of its total potential returns per unit of risk. Wangneng Environment Co is currently generating about 0.11 per unit of volatility. If you would invest  1,317  in Wangneng Environment Co on December 10, 2024 and sell it today you would earn a total of  395.00  from holding Wangneng Environment Co or generate 29.99% 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.  Wangneng Environment Co

China Life Insurance

Risk-Adjusted Performance

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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Wangneng Environment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wangneng Environment Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wangneng Environment may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China Life and Wangneng Environment

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

The idea behind China Life Insurance and Wangneng Environment Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.