Correlation Between China Life and Dr Peng

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

Diversification Opportunities for China Life and Dr Peng

-0.15

Correlation Coefficient

China Life  Dr Peng

Good diversification

The 3 months correlation between China and 600804 is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Dr Peng Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dr Peng Telecom 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 Dr Peng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dr Peng Telecom has no effect on the direction of China Life i.e., China Life and Dr Peng go up and down completely randomly.

Pair Corralation between China Life and Dr Peng

Assuming the 90 days trading horizon China Life Insurance is expected to under-perform the Dr Peng. But the stock apears to be less risky and, when comparing its historical volatility, China Life Insurance is 2.31 times less risky than Dr Peng. The stock trades about -0.12 of its potential returns per unit of risk. The Dr Peng Telecom is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  189.00  in Dr Peng Telecom on October 24, 2024 and sell it today you would earn a total of  2.00  from holding Dr Peng Telecom or generate 1.06% return on investment over 90 days.

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

China Life Insurance  vs.  Dr Peng Telecom

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.

Dr Peng Telecom

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with China Life and Dr Peng

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

The idea behind China Life Insurance and Dr Peng Telecom 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.