Correlation Between China General and TECO Electric
Can any of the company-specific risk be diversified away by investing in both China General and TECO Electric 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 General and TECO Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China General Plastics and TECO Electric Machinery, you can compare the effects of market volatilities on China General and TECO Electric 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 General with a short position of TECO Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of China General and TECO Electric.
Diversification Opportunities for China General and TECO Electric
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and TECO is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding China General Plastics and TECO Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TECO Electric Machinery and China General 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 General Plastics are associated (or correlated) with TECO Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TECO Electric Machinery has no effect on the direction of China General i.e., China General and TECO Electric go up and down completely randomly.
Pair Corralation between China General and TECO Electric
Assuming the 90 days trading horizon China General Plastics is expected to under-perform the TECO Electric. But the stock apears to be less risky and, when comparing its historical volatility, China General Plastics is 1.01 times less risky than TECO Electric. The stock trades about -0.33 of its potential returns per unit of risk. The TECO Electric Machinery is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 4,990 in TECO Electric Machinery on August 28, 2024 and sell it today you would earn a total of 150.00 from holding TECO Electric Machinery or generate 3.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China General Plastics vs. TECO Electric Machinery
Performance |
| Timeline |
| China General Plastics |
| TECO Electric Machinery |
China General and TECO Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China General and TECO Electric
The main advantage of trading using opposite China General and TECO Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China General position performs unexpectedly, TECO Electric 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 TECO Electric will offset losses from the drop in TECO Electric's long position.| China General vs. Cheng Shin Rubber | China General vs. China Steel Chemical | China General vs. Yulon Motor Co |
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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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