Correlation Between China Life and Der International

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

Diversification Opportunities for China Life and Der International

0.84

Correlation Coefficient

China Life  Der International

Very poor diversification

The 3 months correlation between China and Der is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Der International Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Der International Home 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 Der International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Der International Home has no effect on the direction of China Life i.e., China Life and Der International go up and down completely randomly.

Pair Corralation between China Life and Der International

Assuming the 90 days trading horizon China Life is expected to generate 1.15 times less return on investment than Der International. But when comparing it to its historical volatility, China Life Insurance is 1.0 times less risky than Der International. It trades about 0.12 of its potential returns per unit of risk. Der International Home is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  401.00  in Der International Home on September 2, 2024 and sell it today you would earn a total of  111.00  from holding Der International Home or generate 27.68% return on investment over 90 days.

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

China Life Insurance  vs.  Der International Home

China Life Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Der International Home

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with China Life and Der International

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

The idea behind China Life Insurance and Der International Home 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.