Correlation Between Great Sun and New China

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

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

Diversification Opportunities for Great Sun and New China

0.41

Correlation Coefficient

Great Sun  New China

Very weak diversification

The 3 months correlation between Great and New is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Great Sun Foods Co and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and Great Sun 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 Great Sun Foods Co are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Great Sun i.e., Great Sun and New China go up and down completely randomly.

Pair Corralation between Great Sun and New China

Assuming the 90 days trading horizon Great Sun Foods Co is expected to under-perform the New China. In addition to that, Great Sun is 1.57 times more volatile than New China Life. It trades about -0.29 of its total potential returns per unit of risk. New China Life is currently generating about -0.3 per unit of volatility. If you would invest  5,322  in New China Life on October 11, 2024 and sell it today you would lose (697.00) from holding New China Life or give up 13.1% of portfolio value over 90 days.

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

Great Sun Foods Co  vs.  New China Life

Great Sun Foods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great Sun Foods Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Great Sun sustained solid returns over the last few months and may actually be approaching a breakup point.

New China Life

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Great Sun and New China

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

The idea behind Great Sun Foods Co and New China Life 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.