Correlation Between Illumina and China New

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

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

Diversification Opportunities for Illumina and China New

-0.29

Correlation Coefficient

Illumina  China New

Very good diversification

The 3 months correlation between Illumina and China is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Illumina and China New Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China New Energy and Illumina 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 Illumina are associated (or correlated) with China New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China New Energy has no effect on the direction of Illumina i.e., Illumina and China New go up and down completely randomly.

Pair Corralation between Illumina and China New

Given the investment horizon of 90 days Illumina is expected to generate 0.2 times more return on investment than China New. However, Illumina is 4.92 times less risky than China New. It trades about 0.03 of its potential returns per unit of risk. China New Energy is currently generating about -0.17 per unit of risk. If you would invest  13,496  in Illumina on October 27, 2024 and sell it today you would earn a total of  126.00  from holding Illumina or generate 0.93% return on investment over 90 days.

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

Illumina  vs.  China New Energy

Illumina

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Illumina has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Illumina is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

China New Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China New Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, China New reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Illumina and China New

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

The idea behind Illumina and China New Energy 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 Transaction History module to view history of all your transactions and understand their impact on performance.