Correlation Between SICC and New China

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

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

Diversification Opportunities for SICC and New China

0.43

Correlation Coefficient

SICC  New China

Very weak diversification

The 3 months correlation between SICC and New is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding SICC 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 SICC 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 SICC 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 SICC i.e., SICC and New China go up and down completely randomly.

Pair Corralation between SICC and New China

Assuming the 90 days trading horizon SICC is expected to generate 3.89 times less return on investment than New China. In addition to that, SICC is 1.31 times more volatile than New China Life. It trades about 0.02 of its total potential returns per unit of risk. New China Life is currently generating about 0.13 per unit of volatility. If you would invest  3,073  in New China Life on October 8, 2024 and sell it today you would earn a total of  1,545  from holding New China Life or generate 50.28% return on investment over 90 days.

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

SICC Co  vs.  New China Life

SICC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SICC Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 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 SICC and New China

The main advantage of trading using opposite SICC and New China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SICC 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 SICC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.