Correlation Between China Development and Chi Hua
Can any of the company-specific risk be diversified away by investing in both China Development and Chi Hua 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 Development and Chi Hua into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Development Financial and Chi Hua Fitness, you can compare the effects of market volatilities on China Development and Chi Hua 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 Development with a short position of Chi Hua. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Chi Hua.
Diversification Opportunities for China Development and Chi Hua
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between China and Chi is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Chi Hua Fitness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chi Hua Fitness and China Development 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 Development Financial are associated (or correlated) with Chi Hua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chi Hua Fitness has no effect on the direction of China Development i.e., China Development and Chi Hua go up and down completely randomly.
Pair Corralation between China Development and Chi Hua
Assuming the 90 days trading horizon China Development is expected to generate 6.36 times less return on investment than Chi Hua. But when comparing it to its historical volatility, China Development Financial is 12.29 times less risky than Chi Hua. It trades about 0.06 of its potential returns per unit of risk. Chi Hua Fitness is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 6,384 in Chi Hua Fitness on September 4, 2024 and sell it today you would lose (2,634) from holding Chi Hua Fitness or give up 41.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Development Financial vs. Chi Hua Fitness
Performance |
| Timeline |
| China Development |
| Chi Hua Fitness |
China Development and Chi Hua Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Development and Chi Hua
The main advantage of trading using opposite China Development and Chi Hua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Development position performs unexpectedly, Chi Hua 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 Chi Hua will offset losses from the drop in Chi Hua's long position.The idea behind China Development Financial and Chi Hua Fitness 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 Stocks Directory module to find actively traded stocks across global markets.
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