Correlation Between Central Europe and China Fund

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

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

Diversification Opportunities for Central Europe and China Fund

0.11

Correlation Coefficient

Central Europe  China Fund

Average diversification

The 3 months correlation between Central and China is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Central Europe Russia and China Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Fund and Central Europe 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 Central Europe Russia are associated (or correlated) with China Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Fund has no effect on the direction of Central Europe i.e., Central Europe and China Fund go up and down completely randomly.

Pair Corralation between Central Europe and China Fund

Considering the 90-day investment horizon Central Europe is expected to generate 1.63 times less return on investment than China Fund. But when comparing it to its historical volatility, Central Europe Russia is 1.55 times less risky than China Fund. It trades about 0.16 of its potential returns per unit of risk. China Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  954.00  in China Fund on September 12, 2024 and sell it today you would earn a total of  314.00  from holding China Fund or generate 32.91% return on investment over 90 days.

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

Central Europe Russia  vs.  China Fund

Central Europe Russia

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Central Europe Russia are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather fragile technical and fundamental indicators, Central Europe exhibited solid returns over the last few months and may actually be approaching a breakup point.

China Fund

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of very unsteady technical indicators, China Fund displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Europe and China Fund

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

The idea behind Central Europe Russia and China Fund 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.