Correlation Between China Power and China Carbon

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

By analyzing existing cross correlation between China Power Equipment and China Carbon Graphit, you can compare the effects of market volatilities on China Power and China Carbon 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 Power with a short position of China Carbon. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Power and China Carbon.

Diversification Opportunities for China Power and China Carbon

-1.0

Correlation Coefficient

China Power  China Carbon

Pay attention - limited upside

The 3 months correlation between China and China is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding China Power Equipment and China Carbon Graphit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Carbon Graphit and China Power 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 Power Equipment are associated (or correlated) with China Carbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Carbon Graphit has no effect on the direction of China Power i.e., China Power and China Carbon go up and down completely randomly.

Pair Corralation between China Power and China Carbon

If you would invest  0.01  in China Carbon Graphit on December 27, 2024 and sell it today you would earn a total of  0.00  from holding China Carbon Graphit or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

China Power Equipment  vs.  China Carbon Graphit

China Power Equipment

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Power Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, China Power is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

China Carbon Graphit

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Carbon Graphit has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, China Carbon is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with China Power and China Carbon

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

The idea behind China Power Equipment and China Carbon Graphit 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.