Correlation Between China Health and Melbana Energy

Can any of the company-specific risk be diversified away by investing in both China Health and Melbana Energy 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 Melbana Energy 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 Melbana Energy Limited, you can compare the effects of market volatilities on China Health and Melbana Energy 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 Melbana Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Health and Melbana Energy.

Diversification Opportunities for China Health and Melbana Energy

-1.0

Correlation Coefficient

China Health  Melbana Energy

Pay attention - limited upside

The 3 months correlation between China and Melbana is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding China Health Industries and Melbana Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melbana Energy 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 Melbana Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melbana Energy has no effect on the direction of China Health i.e., China Health and Melbana Energy go up and down completely randomly.

Pair Corralation between China Health and Melbana Energy

If you would invest  2.00  in Melbana Energy Limited on September 4, 2024 and sell it today you would earn a total of  0.00  from holding Melbana Energy Limited or generate 0.0% return on investment over 90 days.

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

China Health Industries  vs.  Melbana Energy Limited

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 rather sound technical indicators, China Health is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Melbana Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Health and Melbana Energy

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

The idea behind China Health Industries and Melbana Energy Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.