Correlation Between CHINA BANK and Nidec

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

By analyzing existing cross correlation between CHINA BANK ADR20 and Nidec, you can compare the effects of market volatilities on CHINA BANK and Nidec 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 BANK with a short position of Nidec. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA BANK and Nidec.

Diversification Opportunities for CHINA BANK and Nidec

-0.38

Correlation Coefficient

CHINA BANK  Nidec

Very good diversification

The 3 months correlation between CHINA and Nidec is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding CHINA BANK ADR20 and Nidec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nidec and CHINA BANK 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 BANK ADR20 are associated (or correlated) with Nidec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nidec has no effect on the direction of CHINA BANK i.e., CHINA BANK and Nidec go up and down completely randomly.

Pair Corralation between CHINA BANK and Nidec

Assuming the 90 days trading horizon CHINA BANK is expected to generate 3.85 times less return on investment than Nidec. In addition to that, CHINA BANK is 1.13 times more volatile than Nidec. It trades about 0.02 of its total potential returns per unit of risk. Nidec is currently generating about 0.1 per unit of volatility. If you would invest  418.00  in Nidec on October 15, 2024 and sell it today you would earn a total of  12.00  from holding Nidec or generate 2.87% return on investment over 90 days.

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

CHINA BANK ADR20  vs.  Nidec

CHINA BANK ADR20

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA BANK may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nidec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nidec has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Nidec is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CHINA BANK and Nidec

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

The idea behind CHINA BANK ADR20 and Nidec 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.