Correlation Between Semiconductor Manufacturing and China Reform

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

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

Diversification Opportunities for Semiconductor Manufacturing and China Reform

0.07

Correlation Coefficient

Semiconductor Manufacturing  China Reform

Significant diversification

The 3 months correlation between Semiconductor and China is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Semiconductor Manufacturing In 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 Semiconductor Manufacturing 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 Semiconductor Manufacturing Intl 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 Semiconductor Manufacturing i.e., Semiconductor Manufacturing and China Reform go up and down completely randomly.

Pair Corralation between Semiconductor Manufacturing and China Reform

Assuming the 90 days trading horizon Semiconductor Manufacturing Intl is expected to under-perform the China Reform. But the stock apears to be less risky and, when comparing its historical volatility, Semiconductor Manufacturing Intl is 1.35 times less risky than China Reform. The stock trades about -0.03 of its potential returns per unit of risk. The China Reform Health is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,134  in China Reform Health on December 28, 2024 and sell it today you would lose (38.00) from holding China Reform Health or give up 3.35% of portfolio value over 90 days.

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

Semiconductor Manufacturing In  vs.  China Reform Health

Semiconductor Manufacturing

Risk-Adjusted Performance

Very Weak

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

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 Semiconductor Manufacturing and China Reform

The main advantage of trading using opposite Semiconductor Manufacturing and China Reform positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Semiconductor Manufacturing 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 Semiconductor Manufacturing Intl 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.