Correlation Between China New and Danaher
Can any of the company-specific risk be diversified away by investing in both China New and Danaher 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 New and Danaher into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China New Energy and Danaher, you can compare the effects of market volatilities on China New and Danaher 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 New with a short position of Danaher. Check out your portfolio center. Please also check ongoing floating volatility patterns of China New and Danaher.
Diversification Opportunities for China New and Danaher
Poor diversification
The 3 months correlation between China and Danaher is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding China New Energy and Danaher in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danaher and China New 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 New Energy are associated (or correlated) with Danaher. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danaher has no effect on the direction of China New i.e., China New and Danaher go up and down completely randomly.
Pair Corralation between China New and Danaher
Given the investment horizon of 90 days China New Energy is expected to generate 36.47 times more return on investment than Danaher. However, China New is 36.47 times more volatile than Danaher. It trades about 0.19 of its potential returns per unit of risk. Danaher is currently generating about -0.1 per unit of risk. If you would invest 0.40 in China New Energy on September 1, 2024 and sell it today you would earn a total of 0.40 from holding China New Energy or generate 100.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China New Energy vs. Danaher
Performance |
| Timeline |
| China New Energy |
| Danaher |
China New and Danaher Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China New and Danaher
The main advantage of trading using opposite China New and Danaher positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China New position performs unexpectedly, Danaher 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 Danaher will offset losses from the drop in Danaher's long position.| China New vs. Sonic Healthcare Ltd | China New vs. Lonza Group | China New vs. Charles River Laboratories | China New vs. Qiagen NV |
| Danaher vs. Agilent Technologies | Danaher vs. Illumina | Danaher vs. IDEXX Laboratories | Danaher vs. Waters |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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