Correlation Between Farsoon Technology and China Reform

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

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

Diversification Opportunities for Farsoon Technology and China Reform

0.52

Correlation Coefficient

Farsoon Technology  China Reform

Very weak diversification

The 3 months correlation between Farsoon and China is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Farsoon Technology Co and China Reform Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reform Health and Farsoon Technology 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 Farsoon Technology Co are associated (or correlated) with China Reform. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reform Health has no effect on the direction of Farsoon Technology i.e., Farsoon Technology and China Reform go up and down completely randomly.

Pair Corralation between Farsoon Technology and China Reform

Assuming the 90 days trading horizon Farsoon Technology Co is expected to generate 1.36 times more return on investment than China Reform. However, Farsoon Technology is 1.36 times more volatile than China Reform Health. It trades about 0.26 of its potential returns per unit of risk. China Reform Health is currently generating about 0.0 per unit of risk. If you would invest  2,014  in Farsoon Technology Co on December 25, 2024 and sell it today you would earn a total of  1,908  from holding Farsoon Technology Co or generate 94.74% return on investment over 90 days.

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

Farsoon Technology Co  vs.  China Reform Health

Farsoon Technology

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Farsoon Technology Co are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Farsoon Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

China Reform Health

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Farsoon Technology and China Reform

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

The idea behind Farsoon Technology Co and China Reform Health 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.