Correlation Between China Health and Blue Line

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

Diversification Opportunities for China Health and Blue Line

0.48

Correlation Coefficient

China Health  Blue Line

Very weak diversification

The 3 months correlation between China and Blue is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding China Health Management and Blue Line Protection in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Line Protection 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 Blue Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Line Protection has no effect on the direction of China Health i.e., China Health and Blue Line go up and down completely randomly.

Pair Corralation between China Health and Blue Line

Given the investment horizon of 90 days China Health Management is expected to under-perform the Blue Line. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Health Management is 4.89 times less risky than Blue Line. The pink sheet trades about -0.26 of its potential returns per unit of risk. The Blue Line Protection is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5.57  in Blue Line Protection on October 10, 2024 and sell it today you would earn a total of  0.83  from holding Blue Line Protection or generate 14.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

China Health Management  vs.  Blue Line Protection

China Health Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Health Management 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.

Blue Line Protection

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Health and Blue Line

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

The idea behind China Health Management and Blue Line Protection 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.