Correlation Between Shuhua Sports and China Life

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

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

Diversification Opportunities for Shuhua Sports and China Life

0.08

Correlation Coefficient

Shuhua Sports  China Life

Significant diversification

The 3 months correlation between Shuhua and China is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Shuhua Sports 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 Shuhua Sports 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 Shuhua Sports 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 Shuhua Sports i.e., Shuhua Sports and China Life go up and down completely randomly.

Pair Corralation between Shuhua Sports and China Life

Assuming the 90 days trading horizon Shuhua Sports is expected to generate 5.39 times less return on investment than China Life. But when comparing it to its historical volatility, Shuhua Sports Co is 1.05 times less risky than China Life. It trades about 0.02 of its potential returns per unit of risk. China Life Insurance is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,983  in China Life Insurance on October 4, 2024 and sell it today you would earn a total of  1,209  from holding China Life Insurance or generate 40.53% return on investment over 90 days.

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

Shuhua Sports Co  vs.  China Life Insurance

Shuhua Sports

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shuhua Sports Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shuhua Sports 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 Shuhua Sports and China Life

The main advantage of trading using opposite Shuhua Sports and China Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shuhua Sports 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 Shuhua Sports 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.