Correlation Between Shanghai Suochen and China Life

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

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

Diversification Opportunities for Shanghai Suochen and China Life

0.7

Correlation Coefficient

Shanghai Suochen  China Life

Poor diversification

The 3 months correlation between Shanghai and China is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Suochen Information 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 Shanghai Suochen 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 Shanghai Suochen Information 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 Shanghai Suochen i.e., Shanghai Suochen and China Life go up and down completely randomly.

Pair Corralation between Shanghai Suochen and China Life

Assuming the 90 days trading horizon Shanghai Suochen Information is expected to under-perform the China Life. In addition to that, Shanghai Suochen is 1.97 times more volatile than China Life Insurance. It trades about -0.24 of its total potential returns per unit of risk. China Life Insurance is currently generating about -0.29 per unit of volatility. If you would invest  4,326  in China Life Insurance on October 12, 2024 and sell it today you would lose (476.00) from holding China Life Insurance or give up 11.0% of portfolio value over 90 days.

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

Shanghai Suochen Information  vs.  China Life Insurance

Shanghai Suochen Inf

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Suochen Information are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Suochen 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 Shanghai Suochen and China Life

The main advantage of trading using opposite Shanghai Suochen and China Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Suochen 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 Shanghai Suochen Information 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.