Correlation Between Waters and China New

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

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

Diversification Opportunities for Waters and China New

-0.21

Correlation Coefficient

Waters  China New

Very good diversification

The 3 months correlation between Waters and China is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Waters 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 Waters 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 Waters 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 Waters i.e., Waters and China New go up and down completely randomly.

Pair Corralation between Waters and China New

Considering the 90-day investment horizon Waters is expected to generate 0.18 times more return on investment than China New. However, Waters is 5.52 times less risky than China New. It trades about 0.06 of its potential returns per unit of risk. China New Energy is currently generating about -0.19 per unit of risk. If you would invest  36,043  in Waters on December 18, 2024 and sell it today you would earn a total of  1,849  from holding Waters or generate 5.13% return on investment over 90 days.

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

Waters  vs.  China New Energy

Waters

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waters are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Waters may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China New Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China New Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Waters and China New

The main advantage of trading using opposite Waters and China New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waters 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 Waters 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..