Correlation Between China Gas and Analog Devices

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

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

Diversification Opportunities for China Gas and Analog Devices

0.16

Correlation Coefficient

China Gas  Analog Devices

Average diversification

The 3 months correlation between China and Analog is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Gas Holdings and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and China Gas 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 Gas Holdings are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of China Gas i.e., China Gas and Analog Devices go up and down completely randomly.

Pair Corralation between China Gas and Analog Devices

Assuming the 90 days horizon China Gas is expected to generate 7.68 times less return on investment than Analog Devices. But when comparing it to its historical volatility, China Gas Holdings is 2.14 times less risky than Analog Devices. It trades about 0.01 of its potential returns per unit of risk. Analog Devices is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  20,688  in Analog Devices on December 19, 2024 and sell it today you would earn a total of  228.00  from holding Analog Devices or generate 1.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.44%
Values	Daily Returns

China Gas Holdings  vs.  Analog Devices

China Gas Holdings

Risk-Adjusted Performance

Very Weak

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

Analog Devices

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Analog Devices are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with China Gas and Analog Devices

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

The idea behind China Gas Holdings and Analog Devices 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.