Correlation Between China State and Yili Chuanning

Can any of the company-specific risk be diversified away by investing in both China State and Yili Chuanning 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 State and Yili Chuanning into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China State Construction and Yili Chuanning Biotechnology, you can compare the effects of market volatilities on China State and Yili Chuanning 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 State with a short position of Yili Chuanning. Check out your portfolio center. Please also check ongoing floating volatility patterns of China State and Yili Chuanning.

Diversification Opportunities for China State and Yili Chuanning

0.79

Correlation Coefficient

China State  Yili Chuanning

Poor diversification

The 3 months correlation between China and Yili is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction and Yili Chuanning Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yili Chuanning Biote and China State 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 State Construction are associated (or correlated) with Yili Chuanning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yili Chuanning Biote has no effect on the direction of China State i.e., China State and Yili Chuanning go up and down completely randomly.

Pair Corralation between China State and Yili Chuanning

Assuming the 90 days trading horizon China State Construction is expected to under-perform the Yili Chuanning. But the stock apears to be less risky and, when comparing its historical volatility, China State Construction is 1.5 times less risky than Yili Chuanning. The stock trades about -0.15 of its potential returns per unit of risk. The Yili Chuanning Biotechnology is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,345  in Yili Chuanning Biotechnology on October 23, 2024 and sell it today you would lose (133.00) from holding Yili Chuanning Biotechnology or give up 9.89% of portfolio value over 90 days.

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

China State Construction  vs.  Yili Chuanning Biotechnology

China State Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China State Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Yili Chuanning Biote

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yili Chuanning Biotechnology 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 State and Yili Chuanning

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

The idea behind China State Construction and Yili Chuanning Biotechnology 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.