Correlation Between Fact and China Power

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

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

Diversification Opportunities for Fact and China Power

-1.0

Correlation Coefficient

Fact  China Power

Pay attention - limited upside

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

Pair Corralation between Fact and China Power

If you would invest  0.52  in China Power Equipment on October 11, 2024 and sell it today you would earn a total of  0.00  from holding China Power Equipment or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Fact Inc  vs.  China Power Equipment

Fact Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Power Equipment

Risk-Adjusted Performance

0 of 100

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 recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Fact and China Power

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

The idea behind Fact Inc and China Power Equipment 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 Global Correlations module to find global opportunities by holding instruments from different markets.