Correlation Between China Life and Tianjin Realty

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Can any of the company-specific risk be diversified away by investing in both China Life and Tianjin Realty 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 Life and Tianjin Realty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Life Insurance and Tianjin Realty Development, you can compare the effects of market volatilities on China Life and Tianjin Realty 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 Life with a short position of Tianjin Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Life and Tianjin Realty.

Diversification Opportunities for China Life and Tianjin Realty

0.31
  Correlation Coefficient

Weak diversification

The 3 months correlation between China and Tianjin is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Tianjin Realty Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Realty Devel and China Life 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 Life Insurance are associated (or correlated) with Tianjin Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Realty Devel has no effect on the direction of China Life i.e., China Life and Tianjin Realty go up and down completely randomly.

Pair Corralation between China Life and Tianjin Realty

Assuming the 90 days trading horizon China Life is expected to generate 26.34 times less return on investment than Tianjin Realty. But when comparing it to its historical volatility, China Life Insurance is 1.92 times less risky than Tianjin Realty. It trades about 0.0 of its potential returns per unit of risk. Tianjin Realty Development is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  191.00  in Tianjin Realty Development on January 21, 2025 and sell it today you would earn a total of  36.00  from holding Tianjin Realty Development or generate 18.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

China Life Insurance  vs.  Tianjin Realty Development

 Performance 
       Timeline  
China Life Insurance 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days China Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Tianjin Realty Devel 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Realty Development are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Tianjin Realty is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Life and Tianjin Realty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Life and Tianjin Realty

The main advantage of trading using opposite China Life and Tianjin Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Life position performs unexpectedly, Tianjin Realty 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 Tianjin Realty will offset losses from the drop in Tianjin Realty's long position.
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The idea behind China Life Insurance and Tianjin Realty Development 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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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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