Correlation Between Transport International and New China

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

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

Diversification Opportunities for Transport International and New China

0.1

Correlation Coefficient

Transport International  New China

Average diversification

The 3 months correlation between Transport and New is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Transport International Holdin and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and Transport International 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 Transport International Holdings are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Transport International i.e., Transport International and New China go up and down completely randomly.

Pair Corralation between Transport International and New China

Assuming the 90 days horizon Transport International Holdings is expected to under-perform the New China. But the stock apears to be less risky and, when comparing its historical volatility, Transport International Holdings is 2.89 times less risky than New China. The stock trades about -0.01 of its potential returns per unit of risk. The New China Life is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  233.00  in New China Life on September 29, 2024 and sell it today you would earn a total of  61.00  from holding New China Life or generate 26.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Transport International Holdin  vs.  New China Life

Transport International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transport International Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Transport International is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

New China Life

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New China Life are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, New China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transport International and New China

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

The idea behind Transport International Holdings and New China Life 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.