Correlation Between China Life and Beijing Enlight

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

Diversification Opportunities for China Life and Beijing Enlight

0.17

Correlation Coefficient

China Life  Beijing Enlight

Average diversification

The 3 months correlation between China and Beijing is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Beijing Enlight Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Enlight Media 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 Beijing Enlight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Enlight Media has no effect on the direction of China Life i.e., China Life and Beijing Enlight go up and down completely randomly.

Pair Corralation between China Life and Beijing Enlight

Assuming the 90 days trading horizon China Life Insurance is expected to under-perform the Beijing Enlight. But the stock apears to be less risky and, when comparing its historical volatility, China Life Insurance is 1.08 times less risky than Beijing Enlight. The stock trades about -0.06 of its potential returns per unit of risk. The Beijing Enlight Media is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  811.00  in Beijing Enlight Media on October 9, 2024 and sell it today you would earn a total of  42.00  from holding Beijing Enlight Media or generate 5.18% 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.  Beijing Enlight Media

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.

Beijing Enlight Media

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Enlight Media are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Enlight may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Life and Beijing Enlight

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

The idea behind China Life Insurance and Beijing Enlight Media 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.