Correlation Between Formula Systems and China Overseas
Can any of the company-specific risk be diversified away by investing in both Formula Systems and China Overseas 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 Formula Systems and China Overseas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formula Systems 1985 and China Overseas Land, you can compare the effects of market volatilities on Formula Systems and China Overseas 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 Formula Systems with a short position of China Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formula Systems and China Overseas.
Diversification Opportunities for Formula Systems and China Overseas
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formula and China is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land and Formula Systems 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 Formula Systems 1985 are associated (or correlated) with China Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Formula Systems i.e., Formula Systems and China Overseas go up and down completely randomly.
Pair Corralation between Formula Systems and China Overseas
Assuming the 90 days horizon Formula Systems is expected to generate 1.99 times less return on investment than China Overseas. But when comparing it to its historical volatility, Formula Systems 1985 is 2.15 times less risky than China Overseas. It trades about 0.01 of its potential returns per unit of risk. China Overseas Land is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 251.00 in China Overseas Land on August 28, 2024 and sell it today you would lose (86.00) from holding China Overseas Land or give up 34.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 89.49% |
| Values | Daily Returns |
Formula Systems 1985 vs. China Overseas Land
Performance |
| Timeline |
| Formula Systems 1985 |
| China Overseas Land |
Formula Systems and China Overseas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formula Systems and China Overseas
The main advantage of trading using opposite Formula Systems and China Overseas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formula Systems position performs unexpectedly, China Overseas 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 Overseas will offset losses from the drop in China Overseas' long position.| Formula Systems vs. CSP Inc | Formula Systems vs. Nayax | Formula Systems vs. Information Services Group | Formula Systems vs. The Hackett Group |
| China Overseas vs. Sun Hung Kai | China Overseas vs. China Overseas Land | China Overseas vs. EGRNF | China Overseas vs. Sino Land Co |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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