Correlation Between China Health and Volvo AB

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

Diversification Opportunities for China Health and Volvo AB

-0.03

Correlation Coefficient

China Health  Volvo AB

Good diversification

The 3 months correlation between China and Volvo is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Health Management and Volvo AB ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volvo AB ADR 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 Volvo AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volvo AB ADR has no effect on the direction of China Health i.e., China Health and Volvo AB go up and down completely randomly.

Pair Corralation between China Health and Volvo AB

Given the investment horizon of 90 days China Health Management is expected to under-perform the Volvo AB. In addition to that, China Health is 2.36 times more volatile than Volvo AB ADR. It trades about -0.26 of its total potential returns per unit of risk. Volvo AB ADR is currently generating about -0.15 per unit of volatility. If you would invest  2,512  in Volvo AB ADR on October 3, 2024 and sell it today you would lose (94.00) from holding Volvo AB ADR or give up 3.74% of portfolio value over 90 days.

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

China Health Management  vs.  Volvo AB ADR

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.

Volvo AB ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volvo AB ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Volvo AB 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 Health and Volvo AB

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

The idea behind China Health Management and Volvo AB ADR 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..