Correlation Between Great China and Ching Feng
Can any of the company-specific risk be diversified away by investing in both Great China and Ching Feng 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 Great China and Ching Feng into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Great China Metal and Ching Feng Home, you can compare the effects of market volatilities on Great China and Ching Feng 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 Great China with a short position of Ching Feng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great China and Ching Feng.
Diversification Opportunities for Great China and Ching Feng
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Great and Ching is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and Ching Feng Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ching Feng Home and Great 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 Great China Metal are associated (or correlated) with Ching Feng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ching Feng Home has no effect on the direction of Great China i.e., Great China and Ching Feng go up and down completely randomly.
Pair Corralation between Great China and Ching Feng
Assuming the 90 days trading horizon Great China is expected to generate 7.05 times less return on investment than Ching Feng. But when comparing it to its historical volatility, Great China Metal is 7.21 times less risky than Ching Feng. It trades about 0.34 of its potential returns per unit of risk. Ching Feng Home is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 2,975 in Ching Feng Home on November 8, 2024 and sell it today you would earn a total of 375.00 from holding Ching Feng Home or generate 12.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Great China Metal vs. Ching Feng Home
Performance |
| Timeline |
| Great China Metal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| Ching Feng Home |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Great China and Ching Feng Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Great China and Ching Feng
The main advantage of trading using opposite Great China and Ching Feng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great China position performs unexpectedly, Ching Feng 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 Ching Feng will offset losses from the drop in Ching Feng's long position.The idea behind Great China Metal and Ching Feng Home 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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