Correlation Between China Life and Senci Electric

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

Diversification Opportunities for China Life and Senci Electric

0.56

Correlation Coefficient

China Life  Senci Electric

Very weak diversification

The 3 months correlation between China and Senci is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Senci Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Senci Electric Machinery 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 Senci Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Senci Electric Machinery has no effect on the direction of China Life i.e., China Life and Senci Electric go up and down completely randomly.

Pair Corralation between China Life and Senci Electric

Assuming the 90 days trading horizon China Life is expected to generate 2.58 times less return on investment than Senci Electric. In addition to that, China Life is 1.09 times more volatile than Senci Electric Machinery. It trades about 0.06 of its total potential returns per unit of risk. Senci Electric Machinery is currently generating about 0.16 per unit of volatility. If you would invest  1,332  in Senci Electric Machinery on September 26, 2024 and sell it today you would earn a total of  401.00  from holding Senci Electric Machinery or generate 30.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

China Life Insurance  vs.  Senci Electric Machinery

China Life Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Senci Electric Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Senci Electric Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Senci Electric sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Life and Senci Electric

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

The idea behind China Life Insurance and Senci Electric Machinery 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.