Correlation Between China Development and Apple
Can any of the company-specific risk be diversified away by investing in both China Development and Apple 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 Apple into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Development Bank and Apple Inc, you can compare the effects of market volatilities on China Development and Apple 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 Apple. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Apple.
Diversification Opportunities for China Development and Apple
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and Apple is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding China Development Bank and Apple Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apple Inc 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 Bank are associated (or correlated) with Apple. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apple Inc has no effect on the direction of China Development i.e., China Development and Apple go up and down completely randomly.
Pair Corralation between China Development and Apple
Assuming the 90 days trading horizon China Development Bank is expected to generate 3.33 times more return on investment than Apple. However, China Development is 3.33 times more volatile than Apple Inc. It trades about -0.06 of its potential returns per unit of risk. Apple Inc is currently generating about -0.49 per unit of risk. If you would invest 14.00 in China Development Bank on October 24, 2024 and sell it today you would lose (1.00) from holding China Development Bank or give up 7.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Development Bank vs. Apple Inc
Performance |
| Timeline |
| China Development Bank |
| Apple Inc |
China Development and Apple Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Development and Apple
The main advantage of trading using opposite China Development and Apple positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Development position performs unexpectedly, Apple 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 Apple will offset losses from the drop in Apple's long position.| China Development vs. Apple Inc | China Development vs. Apple Inc | China Development vs. Apple Inc | China Development vs. Apple Inc |
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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