Correlation Between Healthcare and China Fortune

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

By analyzing existing cross correlation between Healthcare Co and China Fortune Land, you can compare the effects of market volatilities on Healthcare and China Fortune 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 Healthcare with a short position of China Fortune. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare and China Fortune.

Diversification Opportunities for Healthcare and China Fortune

0.63

Correlation Coefficient

Healthcare  China Fortune

Poor diversification

The 3 months correlation between Healthcare and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Co and China Fortune Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Fortune Land and Healthcare 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 Healthcare Co are associated (or correlated) with China Fortune. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Fortune Land has no effect on the direction of Healthcare i.e., Healthcare and China Fortune go up and down completely randomly.

Pair Corralation between Healthcare and China Fortune

Assuming the 90 days trading horizon Healthcare Co is expected to generate 0.63 times more return on investment than China Fortune. However, Healthcare Co is 1.59 times less risky than China Fortune. It trades about -0.07 of its potential returns per unit of risk. China Fortune Land is currently generating about -0.26 per unit of risk. If you would invest  727.00  in Healthcare Co on October 5, 2024 and sell it today you would lose (34.00) from holding Healthcare Co or give up 4.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Healthcare Co  vs.  China Fortune Land

Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Fortune Land

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Fortune Land are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Fortune sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Healthcare and China Fortune

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

The idea behind Healthcare Co and China Fortune Land 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.