Correlation Between Great China and Mega Financial

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

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

Diversification Opportunities for Great China and Mega Financial

0.26

Correlation Coefficient

Great China  Mega Financial

Modest diversification

The 3 months correlation between Great and Mega is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and Mega Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mega Financial Holding and Great China 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 Great China Metal are associated (or correlated) with Mega Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mega Financial Holding has no effect on the direction of Great China i.e., Great China and Mega Financial go up and down completely randomly.

Pair Corralation between Great China and Mega Financial

Assuming the 90 days trading horizon Great China Metal is expected to under-perform the Mega Financial. But the stock apears to be less risky and, when comparing its historical volatility, Great China Metal is 2.0 times less risky than Mega Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Mega Financial Holding is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,940  in Mega Financial Holding on September 17, 2024 and sell it today you would earn a total of  10.00  from holding Mega Financial Holding or generate 0.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Great China Metal  vs.  Mega Financial Holding

Great China Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great China Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Great China is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Mega Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mega Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Mega Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Great China and Mega Financial

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

The idea behind Great China Metal and Mega Financial Holding 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .