Correlation Between Northern United and China Securities

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

By analyzing existing cross correlation between Northern United Publishing and China Securities 800, you can compare the effects of market volatilities on Northern United and China Securities 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 Northern United with a short position of China Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern United and China Securities.

Diversification Opportunities for Northern United and China Securities

0.75

Correlation Coefficient

Northern United  China Securities

Poor diversification

The 3 months correlation between Northern and China is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Northern United Publishing and China Securities 800 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Securities 800 and Northern United 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 Northern United Publishing are associated (or correlated) with China Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Securities 800 has no effect on the direction of Northern United i.e., Northern United and China Securities go up and down completely randomly.

Pair Corralation between Northern United and China Securities

Assuming the 90 days trading horizon Northern United Publishing is expected to under-perform the China Securities. In addition to that, Northern United is 1.79 times more volatile than China Securities 800. It trades about -0.12 of its total potential returns per unit of risk. China Securities 800 is currently generating about 0.06 per unit of volatility. If you would invest  422,983  in China Securities 800 on December 10, 2024 and sell it today you would earn a total of  4,567  from holding China Securities 800 or generate 1.08% return on investment over 90 days.

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

Northern United Publishing  vs.  China Securities 800

Pair Trading with Northern United and China Securities

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

The idea behind Northern United Publishing and China Securities 800 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.