Correlation Between China Pacific and Great-West Lifeco

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

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

Diversification Opportunities for China Pacific and Great-West Lifeco

-0.58

Correlation Coefficient

China Pacific  Great-West Lifeco

Excellent diversification

The 3 months correlation between China and Great-West is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Pacific Insurance and Great West Lifeco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifeco and China Pacific 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 Pacific Insurance are associated (or correlated) with Great-West Lifeco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifeco has no effect on the direction of China Pacific i.e., China Pacific and Great-West Lifeco go up and down completely randomly.

Pair Corralation between China Pacific and Great-West Lifeco

Assuming the 90 days horizon China Pacific Insurance is expected to under-perform the Great-West Lifeco. In addition to that, China Pacific is 2.6 times more volatile than Great West Lifeco. It trades about -0.08 of its total potential returns per unit of risk. Great West Lifeco is currently generating about 0.08 per unit of volatility. If you would invest  3,010  in Great West Lifeco on October 10, 2024 and sell it today you would earn a total of  150.00  from holding Great West Lifeco or generate 4.98% return on investment over 90 days.

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

China Pacific Insurance  vs.  Great West Lifeco

China Pacific Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Pacific Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Great West Lifeco

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Lifeco are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Great-West Lifeco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Pacific and Great-West Lifeco

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

The idea behind China Pacific Insurance and Great West Lifeco 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.