Correlation Between China Automotive and China Natural

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

By analyzing existing cross correlation between China Automotive Systems and China Natural Resources, you can compare the effects of market volatilities on China Automotive and China Natural 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 Automotive with a short position of China Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Automotive and China Natural.

Diversification Opportunities for China Automotive and China Natural

-0.35

Correlation Coefficient

China Automotive  China Natural

Very good diversification

The 3 months correlation between China and China is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding China Automotive Systems and China Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Natural Resources and China Automotive 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 Automotive Systems are associated (or correlated) with China Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Natural Resources has no effect on the direction of China Automotive i.e., China Automotive and China Natural go up and down completely randomly.

Pair Corralation between China Automotive and China Natural

Given the investment horizon of 90 days China Automotive Systems is expected to generate 0.47 times more return on investment than China Natural. However, China Automotive Systems is 2.13 times less risky than China Natural. It trades about 0.19 of its potential returns per unit of risk. China Natural Resources is currently generating about 0.0 per unit of risk. If you would invest  409.00  in China Automotive Systems on December 28, 2024 and sell it today you would earn a total of  117.00  from holding China Automotive Systems or generate 28.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

China Automotive Systems  vs.  China Natural Resources

China Automotive Systems

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Automotive Systems are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, China Automotive unveiled solid returns over the last few months and may actually be approaching a breakup point.

China Natural Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, China Natural is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with China Automotive and China Natural

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

The idea behind China Automotive Systems and China Natural Resources 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.