Correlation Between China Health and Bri Chem

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

Diversification Opportunities for China Health and Bri Chem

-0.63

Correlation Coefficient

China Health  Bri Chem

Excellent diversification

The 3 months correlation between China and Bri is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Health Management and Bri Chem Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bri Chem Corp 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 Bri Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bri Chem Corp has no effect on the direction of China Health i.e., China Health and Bri Chem go up and down completely randomly.

Pair Corralation between China Health and Bri Chem

Given the investment horizon of 90 days China Health is expected to generate 10.01 times less return on investment than Bri Chem. But when comparing it to its historical volatility, China Health Management is 3.28 times less risky than Bri Chem. It trades about 0.03 of its potential returns per unit of risk. Bri Chem Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Bri Chem Corp on September 29, 2024 and sell it today you would earn a total of  1.00  from holding Bri Chem Corp or generate 4.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

China Health Management  vs.  Bri Chem Corp

China Health Management

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Health Management are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, China Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bri Chem Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bri Chem Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, Bri Chem reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Health and Bri Chem

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

The idea behind China Health Management and Bri Chem Corp 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.