Correlation Between China SXT and China Pharma

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

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

Diversification Opportunities for China SXT and China Pharma

0.86

Correlation Coefficient

China SXT  China Pharma

Very poor diversification

The 3 months correlation between China and China is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding China SXT Pharmaceuticals and China Pharma Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pharma Holdings and China SXT 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 SXT Pharmaceuticals are associated (or correlated) with China Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pharma Holdings has no effect on the direction of China SXT i.e., China SXT and China Pharma go up and down completely randomly.

Pair Corralation between China SXT and China Pharma

Given the investment horizon of 90 days China SXT Pharmaceuticals is expected to generate 1.41 times more return on investment than China Pharma. However, China SXT is 1.41 times more volatile than China Pharma Holdings. It trades about 0.08 of its potential returns per unit of risk. China Pharma Holdings is currently generating about -0.03 per unit of risk. If you would invest  39.00  in China SXT Pharmaceuticals on October 1, 2024 and sell it today you would earn a total of  2.80  from holding China SXT Pharmaceuticals or generate 7.18% return on investment over 90 days.

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

China SXT Pharmaceuticals  vs.  China Pharma Holdings

China SXT Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China SXT Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

China Pharma Holdings

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days China Pharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with China SXT and China Pharma

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

The idea behind China SXT Pharmaceuticals and China Pharma Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.