Correlation Between China Life and Shanghai Zhangjiang

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

Diversification Opportunities for China Life and Shanghai Zhangjiang

0.92

Correlation Coefficient

China Life  Shanghai Zhangjiang

Almost no diversification

The 3 months correlation between China and Shanghai is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Shanghai Zhangjiang Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Zhangjiang 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 Shanghai Zhangjiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Zhangjiang has no effect on the direction of China Life i.e., China Life and Shanghai Zhangjiang go up and down completely randomly.

Pair Corralation between China Life and Shanghai Zhangjiang

Assuming the 90 days trading horizon China Life is expected to generate 2.52 times less return on investment than Shanghai Zhangjiang. But when comparing it to its historical volatility, China Life Insurance is 1.43 times less risky than Shanghai Zhangjiang. It trades about 0.13 of its potential returns per unit of risk. Shanghai Zhangjiang Hi Tech is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,691  in Shanghai Zhangjiang Hi Tech on September 3, 2024 and sell it today you would earn a total of  1,273  from holding Shanghai Zhangjiang Hi Tech or generate 75.28% return on investment over 90 days.

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

China Life Insurance  vs.  Shanghai Zhangjiang Hi Tech

China Life Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 10 (%) 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.

Shanghai Zhangjiang

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Zhangjiang Hi Tech are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Zhangjiang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Life and Shanghai Zhangjiang

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

The idea behind China Life Insurance and Shanghai Zhangjiang Hi Tech 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.