Correlation Between China Vanke and City Developments

Can any of the company-specific risk be diversified away by investing in both China Vanke 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 Vanke 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 Vanke Co and City Developments, you can compare the effects of market volatilities on China Vanke 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 Vanke with a short position of City Developments. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Vanke and City Developments.

Diversification Opportunities for China Vanke and City Developments

0.39

Correlation Coefficient

China Vanke  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 Vanke Co and City Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Developments and China Vanke 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 Vanke Co 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 Vanke i.e., China Vanke and City Developments go up and down completely randomly.

Pair Corralation between China Vanke and City Developments

Assuming the 90 days horizon China Vanke is expected to generate 1.33 times less return on investment than City Developments. In addition to that, China Vanke is 1.64 times more volatile than City Developments. It trades about 0.01 of its total potential returns per unit of risk. City Developments is currently generating about 0.02 per unit of volatility. If you would invest  370.00  in City Developments on December 19, 2024 and sell it today you would earn a total of  7.00  from holding City Developments or generate 1.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

China Vanke Co  vs.  City Developments

China Vanke

Risk-Adjusted Performance

Very Weak

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

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 Vanke and City Developments

The main advantage of trading using opposite China Vanke and City Developments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Vanke 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 Vanke Co 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.