Correlation Between China and Tong Yang
Can any of the company-specific risk be diversified away by investing in both China and Tong Yang 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 and Tong Yang into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Motor Corp and Tong Yang Industry, you can compare the effects of market volatilities on China and Tong Yang 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 with a short position of Tong Yang. Check out your portfolio center. Please also check ongoing floating volatility patterns of China and Tong Yang.
Diversification Opportunities for China and Tong Yang
Poor diversification
The 3 months correlation between China and Tong is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding China Motor Corp and Tong Yang Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Yang Industry and China 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 Motor Corp are associated (or correlated) with Tong Yang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Yang Industry has no effect on the direction of China i.e., China and Tong Yang go up and down completely randomly.
Pair Corralation between China and Tong Yang
Assuming the 90 days trading horizon China is expected to generate 2.04 times less return on investment than Tong Yang. In addition to that, China is 1.05 times more volatile than Tong Yang Industry. It trades about 0.04 of its total potential returns per unit of risk. Tong Yang Industry is currently generating about 0.09 per unit of volatility. If you would invest 4,355 in Tong Yang Industry on November 4, 2024 and sell it today you would earn a total of 6,495 from holding Tong Yang Industry or generate 149.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Motor Corp vs. Tong Yang Industry
Performance |
| Timeline |
| China Motor Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
| Tong Yang Industry |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
China and Tong Yang Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China and Tong Yang
The main advantage of trading using opposite China and Tong Yang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China position performs unexpectedly, Tong Yang 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 Tong Yang will offset losses from the drop in Tong Yang's long position.The idea behind China Motor Corp and Tong Yang Industry 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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