Correlation Between Healthcare and China Life

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

Diversification Opportunities for Healthcare and China Life

0.35

Correlation Coefficient

Healthcare  China Life

Weak diversification

The 3 months correlation between Healthcare and China is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Co and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance 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 Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Healthcare i.e., Healthcare and China Life go up and down completely randomly.

Pair Corralation between Healthcare and China Life

Assuming the 90 days trading horizon Healthcare Co is expected to under-perform the China Life. In addition to that, Healthcare is 1.08 times more volatile than China Life Insurance. It trades about -0.03 of its total potential returns per unit of risk. China Life Insurance is currently generating about 0.02 per unit of volatility. If you would invest  3,750  in China Life Insurance on October 4, 2024 and sell it today you would earn a total of  442.00  from holding China Life Insurance or generate 11.79% return on investment over 90 days.

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

Healthcare Co  vs.  China Life Insurance

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 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.

Pair Trading with Healthcare and China Life

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

The idea behind Healthcare Co and China Life Insurance 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.