Correlation Between China Sun and China Medicine

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

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

Diversification Opportunities for China Sun and China Medicine

0.0

Correlation Coefficient

China Sun  China Medicine

Pay attention - limited upside

The 3 months correlation between China and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Sun Grp and China Medicine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medicine and China Sun 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 Sun Grp are associated (or correlated) with China Medicine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medicine has no effect on the direction of China Sun i.e., China Sun and China Medicine go up and down completely randomly.

Pair Corralation between China Sun and China Medicine

If you would invest  0.30  in China Medicine on December 19, 2024 and sell it today you would lose (0.29) from holding China Medicine or give up 96.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

China Sun Grp  vs.  China Medicine

China Sun Grp

Risk-Adjusted Performance

Very Weak

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

China Medicine

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Medicine are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, China Medicine exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Sun and China Medicine

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

The idea behind China Sun Grp and China Medicine 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.