Correlation Between Sonic Healthcare and China New

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

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

Diversification Opportunities for Sonic Healthcare and China New

0.43

Correlation Coefficient

Sonic Healthcare  China New

Very weak diversification

The 3 months correlation between Sonic and China is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Healthcare Ltd 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 Sonic Healthcare 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 Sonic Healthcare Ltd 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 Sonic Healthcare i.e., Sonic Healthcare and China New go up and down completely randomly.

Pair Corralation between Sonic Healthcare and China New

Assuming the 90 days horizon Sonic Healthcare is expected to generate 412.38 times less return on investment than China New. But when comparing it to its historical volatility, Sonic Healthcare Ltd is 32.18 times less risky than China New. It trades about 0.01 of its potential returns per unit of risk. China New Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1.20  in China New Energy on August 30, 2024 and sell it today you would lose (0.40) from holding China New Energy or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Sonic Healthcare Ltd  vs.  China New Energy

Sonic Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonic Healthcare Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Sonic Healthcare is not utilizing all of its potentials. The latest stock price disturbance, 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 Sonic Healthcare and China New

The main advantage of trading using opposite Sonic Healthcare and China New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sonic Healthcare 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 Sonic Healthcare Ltd 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.