Correlation Between CHINA EDUCATION and Big 5

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

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

Diversification Opportunities for CHINA EDUCATION and Big 5

0.41

Correlation Coefficient

CHINA EDUCATION  Big 5

Very weak diversification

The 3 months correlation between CHINA and Big is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding CHINA EDUCATION GROUP and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting and CHINA EDUCATION 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 EDUCATION GROUP are associated (or correlated) with Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of CHINA EDUCATION i.e., CHINA EDUCATION and Big 5 go up and down completely randomly.

Pair Corralation between CHINA EDUCATION and Big 5

Assuming the 90 days horizon CHINA EDUCATION GROUP is expected to generate 1.1 times more return on investment than Big 5. However, CHINA EDUCATION is 1.1 times more volatile than Big 5 Sporting. It trades about 0.05 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.07 per unit of risk. If you would invest  27.00  in CHINA EDUCATION GROUP on August 31, 2024 and sell it today you would earn a total of  16.00  from holding CHINA EDUCATION GROUP or generate 59.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.74%
Values	Daily Returns

CHINA EDUCATION GROUP  vs.  Big 5 Sporting

CHINA EDUCATION GROUP

Risk-Adjusted Performance

0 of 100

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 nearly stable basic indicators, CHINA EDUCATION is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

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 nearly stable basic indicators, Big 5 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 EDUCATION and Big 5

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

The idea behind CHINA EDUCATION GROUP and Big 5 Sporting 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.