Correlation Between Fuda Alloy and China National

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

By analyzing existing cross correlation between Fuda Alloy Materials and China National Medicines, you can compare the effects of market volatilities on Fuda Alloy and China National 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 Fuda Alloy with a short position of China National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuda Alloy and China National.

Diversification Opportunities for Fuda Alloy and China National

0.21

Correlation Coefficient

Fuda Alloy  China National

Modest diversification

The 3 months correlation between Fuda and China is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fuda Alloy Materials and China National Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Medicines and Fuda Alloy 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 Fuda Alloy Materials are associated (or correlated) with China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Medicines has no effect on the direction of Fuda Alloy i.e., Fuda Alloy and China National go up and down completely randomly.

Pair Corralation between Fuda Alloy and China National

Assuming the 90 days trading horizon Fuda Alloy is expected to generate 2.12 times less return on investment than China National. In addition to that, Fuda Alloy is 1.33 times more volatile than China National Medicines. It trades about 0.01 of its total potential returns per unit of risk. China National Medicines is currently generating about 0.02 per unit of volatility. If you would invest  2,934  in China National Medicines on October 11, 2024 and sell it today you would earn a total of  191.00  from holding China National Medicines or generate 6.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Fuda Alloy Materials  vs.  China National Medicines

Fuda Alloy Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fuda Alloy Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fuda Alloy sustained solid returns over the last few months and may actually be approaching a breakup point.

China National Medicines

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fuda Alloy and China National

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

The idea behind Fuda Alloy Materials and China National Medicines 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..