Correlation Between China Health and Aarons

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

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

Diversification Opportunities for China Health and Aarons

-0.61

Correlation Coefficient

China Health  Aarons

Excellent diversification

The 3 months correlation between China and Aarons is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding China Health Industries and The Aarons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons and China Health 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 Health Industries are associated (or correlated) with Aarons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons has no effect on the direction of China Health i.e., China Health and Aarons go up and down completely randomly.

Pair Corralation between China Health and Aarons

Given the investment horizon of 90 days China Health Industries is expected to generate 10.56 times more return on investment than Aarons. However, China Health is 10.56 times more volatile than The Aarons. It trades about 0.06 of its potential returns per unit of risk. The Aarons is currently generating about 0.0 per unit of risk. If you would invest  11.00  in China Health Industries on October 12, 2024 and sell it today you would earn a total of  11.00  from holding China Health Industries or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	86.67%
Values	Daily Returns

China Health Industries  vs.  The Aarons

China Health Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Health Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Aarons

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Aarons has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Aarons is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with China Health and Aarons

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

The idea behind China Health Industries and The Aarons 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.