Correlation Between Great China and Buima

Can any of the company-specific risk be diversified away by investing in both Great China and Buima 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 Buima 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 Buima Group, you can compare the effects of market volatilities on Great China and Buima 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 Buima. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great China and Buima.

Diversification Opportunities for Great China and Buima

0.39

Correlation Coefficient

Great China  Buima

Weak diversification

The 3 months correlation between Great and Buima is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and Buima Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buima Group 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 Buima. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buima Group has no effect on the direction of Great China i.e., Great China and Buima go up and down completely randomly.

Pair Corralation between Great China and Buima

Assuming the 90 days trading horizon Great China Metal is expected to generate 0.16 times more return on investment than Buima. However, Great China Metal is 6.4 times less risky than Buima. It trades about 0.0 of its potential returns per unit of risk. Buima Group is currently generating about -0.05 per unit of risk. If you would invest  2,331  in Great China Metal on October 24, 2024 and sell it today you would lose (31.00) from holding Great China Metal or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Great China Metal  vs.  Buima Group

Great China Metal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Great China Metal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Buima Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Buima Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Buima showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great China and Buima

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

The idea behind Great China Metal and Buima Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.