Correlation Between China Overseas and City Developments

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

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

Diversification Opportunities for China Overseas and City Developments

0.39

Correlation Coefficient

China Overseas  City Developments

Weak diversification

The 3 months correlation between China and City is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding China Overseas Land and City Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Developments and China Overseas 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 Overseas Land are associated (or correlated) with City Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Developments has no effect on the direction of China Overseas i.e., China Overseas and City Developments go up and down completely randomly.

Pair Corralation between China Overseas and City Developments

Assuming the 90 days horizon China Overseas Land is expected to generate 1.24 times more return on investment than City Developments. However, China Overseas is 1.24 times more volatile than City Developments. It trades about 0.15 of its potential returns per unit of risk. City Developments is currently generating about 0.02 per unit of risk. If you would invest  776.00  in China Overseas Land on December 19, 2024 and sell it today you would earn a total of  201.00  from holding China Overseas Land or generate 25.9% return on investment over 90 days.

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

China Overseas Land  vs.  City Developments

China Overseas Land

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Overseas Land are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, China Overseas showed solid returns over the last few months and may actually be approaching a breakup point.

City Developments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Developments are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, City Developments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Overseas and City Developments

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

The idea behind China Overseas Land and City Developments 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.