Correlation Between China Life and Metallurgical

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

Diversification Opportunities for China Life and Metallurgical

0.88

Correlation Coefficient

China Life  Metallurgical

Very poor diversification

The 3 months correlation between China and Metallurgical is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Metallurgical of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metallurgical 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 Metallurgical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metallurgical has no effect on the direction of China Life i.e., China Life and Metallurgical go up and down completely randomly.

Pair Corralation between China Life and Metallurgical

Assuming the 90 days trading horizon China Life Insurance is expected to generate 1.29 times more return on investment than Metallurgical. However, China Life is 1.29 times more volatile than Metallurgical of. It trades about -0.13 of its potential returns per unit of risk. Metallurgical of is currently generating about -0.27 per unit of risk. If you would invest  4,154  in China Life Insurance on October 23, 2024 and sell it today you would lose (204.00) from holding China Life Insurance or give up 4.91% of portfolio value over 90 days.

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

China Life Insurance  vs.  Metallurgical of

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.

Metallurgical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metallurgical of 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.

Pair Trading with China Life and Metallurgical

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

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