Correlation Between China National and Innovative Medical

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

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

Diversification Opportunities for China National and Innovative Medical

0.67

Correlation Coefficient

China National  Innovative Medical

Poor diversification

The 3 months correlation between China and Innovative is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding China National Electric and Innovative Medical Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovative Medical and China National 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 China National Electric are associated (or correlated) with Innovative Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovative Medical has no effect on the direction of China National i.e., China National and Innovative Medical go up and down completely randomly.

Pair Corralation between China National and Innovative Medical

Assuming the 90 days trading horizon China National is expected to generate 2.94 times less return on investment than Innovative Medical. But when comparing it to its historical volatility, China National Electric is 2.24 times less risky than Innovative Medical. It trades about 0.04 of its potential returns per unit of risk. Innovative Medical Management is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  888.00  in Innovative Medical Management on December 26, 2024 and sell it today you would earn a total of  71.00  from holding Innovative Medical Management or generate 8.0% return on investment over 90 days.

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

China National Electric  vs.  Innovative Medical Management

China National Electric

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China National Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Innovative Medical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Innovative Medical Management are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Innovative Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China National and Innovative Medical

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

The idea behind China National Electric and Innovative Medical Management 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.

Check out your portfolio center.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.