Correlation Between China Natural and China Automotive
Can any of the company-specific risk be diversified away by investing in both China Natural and China Automotive 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 Natural and China Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Natural Resources and China Automotive Systems, you can compare the effects of market volatilities on China Natural and China Automotive 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 Natural with a short position of China Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Natural and China Automotive.
Diversification Opportunities for China Natural and China Automotive
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between China and China is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Natural Resources and China Automotive Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Automotive Systems and China Natural 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 Natural Resources are associated (or correlated) with China Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Automotive Systems has no effect on the direction of China Natural i.e., China Natural and China Automotive go up and down completely randomly.
Pair Corralation between China Natural and China Automotive
Given the investment horizon of 90 days China Natural Resources is expected to generate 4.64 times more return on investment than China Automotive. However, China Natural is 4.64 times more volatile than China Automotive Systems. It trades about 0.01 of its potential returns per unit of risk. China Automotive Systems is currently generating about 0.01 per unit of risk. If you would invest 204.00 in China Natural Resources on August 28, 2024 and sell it today you would lose (143.00) from holding China Natural Resources or give up 70.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.44% |
| Values | Daily Returns |
China Natural Resources vs. China Automotive Systems
Performance |
| Timeline |
| China Natural Resources |
| China Automotive Systems |
China Natural and China Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Natural and China Automotive
The main advantage of trading using opposite China Natural and China Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Natural position performs unexpectedly, China Automotive 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 China Automotive will offset losses from the drop in China Automotive's long position.| China Natural vs. Seychelle Environmtl | China Natural vs. Vow ASA | China Natural vs. Eestech | China Natural vs. Energy and Water |
| China Automotive vs. Dorman Products | China Automotive vs. Monro Muffler Brake | China Automotive vs. Standard Motor Products | China Automotive vs. Stoneridge |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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