Correlation Between China Life and Semiconductor Manufacturing

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

Diversification Opportunities for China Life and Semiconductor Manufacturing

0.22

Correlation Coefficient

China Life  Semiconductor Manufacturing

Modest diversification

The 3 months correlation between China and Semiconductor is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Semiconductor Manufacturing El in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semiconductor Manufacturing 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 Semiconductor Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semiconductor Manufacturing has no effect on the direction of China Life i.e., China Life and Semiconductor Manufacturing go up and down completely randomly.

Pair Corralation between China Life and Semiconductor Manufacturing

Assuming the 90 days trading horizon China Life Insurance is expected to under-perform the Semiconductor Manufacturing. But the stock apears to be less risky and, when comparing its historical volatility, China Life Insurance is 1.16 times less risky than Semiconductor Manufacturing. The stock trades about -0.07 of its potential returns per unit of risk. The Semiconductor Manufacturing Electronics is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Semiconductor Manufacturing Electronics on October 4, 2024 and sell it today you would lose (7.00) from holding Semiconductor Manufacturing Electronics or give up 1.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

China Life Insurance  vs.  Semiconductor Manufacturing El

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.

Semiconductor Manufacturing

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Semiconductor Manufacturing Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Semiconductor Manufacturing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Life and Semiconductor Manufacturing

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

The idea behind China Life Insurance and Semiconductor Manufacturing Electronics 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.