Correlation Between Great China and Sports Gear

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

Diversification Opportunities for Great China and Sports Gear

0.74

Correlation Coefficient

Great China  Sports Gear

Poor diversification

The 3 months correlation between Great and Sports is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and Sports Gear Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sports Gear 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 Sports Gear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sports Gear has no effect on the direction of Great China i.e., Great China and Sports Gear go up and down completely randomly.

Pair Corralation between Great China and Sports Gear

Assuming the 90 days trading horizon Great China is expected to generate 1.61 times less return on investment than Sports Gear. But when comparing it to its historical volatility, Great China Metal is 6.63 times less risky than Sports Gear. It trades about 0.19 of its potential returns per unit of risk. Sports Gear Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  14,200  in Sports Gear Co on December 5, 2024 and sell it today you would earn a total of  800.00  from holding Sports Gear Co or generate 5.63% return on investment over 90 days.

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

Great China Metal  vs.  Sports Gear Co

Great China Metal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Great China Metal are ranked lower than 15 (%) 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.

Sports Gear

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sports Gear Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sports Gear may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Great China and Sports Gear

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

The idea behind Great China Metal and Sports Gear Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.