Correlation Between China Health and Alliance Recovery

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

By analyzing existing cross correlation between China Health Management and Alliance Recovery, you can compare the effects of market volatilities on China Health and Alliance Recovery 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 Alliance Recovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Health and Alliance Recovery.

Diversification Opportunities for China Health and Alliance Recovery

0.47

Correlation Coefficient

China Health  Alliance Recovery

Very weak diversification

The 3 months correlation between China and Alliance is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding China Health Management and Alliance Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Recovery 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 Management are associated (or correlated) with Alliance Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Recovery has no effect on the direction of China Health i.e., China Health and Alliance Recovery go up and down completely randomly.

Pair Corralation between China Health and Alliance Recovery

Given the investment horizon of 90 days China Health Management is expected to generate 1.12 times more return on investment than Alliance Recovery. However, China Health is 1.12 times more volatile than Alliance Recovery. It trades about 0.08 of its potential returns per unit of risk. Alliance Recovery is currently generating about 0.04 per unit of risk. If you would invest  0.40  in China Health Management on December 1, 2024 and sell it today you would earn a total of  0.09  from holding China Health Management or generate 22.5% return on investment over 90 days.

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

China Health Management  vs.  Alliance Recovery

China Health Management

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Health Management are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, China Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alliance Recovery

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Recovery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Alliance Recovery showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Health and Alliance Recovery

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

The idea behind China Health Management and Alliance Recovery 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.