Correlation Between Big 5 and CHINA EDUCATION

Can any of the company-specific risk be diversified away by investing in both Big 5 and CHINA EDUCATION 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 Big 5 and CHINA EDUCATION into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big 5 Sporting and CHINA EDUCATION GROUP, you can compare the effects of market volatilities on Big 5 and CHINA EDUCATION 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 Big 5 with a short position of CHINA EDUCATION. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and CHINA EDUCATION.

Diversification Opportunities for Big 5 and CHINA EDUCATION

0.75

Correlation Coefficient

Big 5  CHINA EDUCATION

Poor diversification

The 3 months correlation between Big and CHINA is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and CHINA EDUCATION GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA EDUCATION GROUP and Big 5 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 Big 5 Sporting are associated (or correlated) with CHINA EDUCATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA EDUCATION GROUP has no effect on the direction of Big 5 i.e., Big 5 and CHINA EDUCATION go up and down completely randomly.

Pair Corralation between Big 5 and CHINA EDUCATION

Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the CHINA EDUCATION. In addition to that, Big 5 is 1.02 times more volatile than CHINA EDUCATION GROUP. It trades about -0.27 of its total potential returns per unit of risk. CHINA EDUCATION GROUP is currently generating about -0.11 per unit of volatility. If you would invest  39.00  in CHINA EDUCATION GROUP on December 28, 2024 and sell it today you would lose (10.00) from holding CHINA EDUCATION GROUP or give up 25.64% of portfolio value over 90 days.

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

Big 5 Sporting  vs.  CHINA EDUCATION GROUP

Big 5 Sporting

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CHINA EDUCATION GROUP

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Big 5 and CHINA EDUCATION

The main advantage of trading using opposite Big 5 and CHINA EDUCATION positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, CHINA EDUCATION 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 EDUCATION will offset losses from the drop in CHINA EDUCATION's long position.

The idea behind Big 5 Sporting and CHINA EDUCATION 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.