Correlation Between Nanhua Bio and Nanjing Medlander

Can any of the company-specific risk be diversified away by investing in both Nanhua Bio and Nanjing Medlander 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 Nanhua Bio and Nanjing Medlander into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nanhua Bio Medicine and Nanjing Medlander Medical, you can compare the effects of market volatilities on Nanhua Bio and Nanjing Medlander 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 Nanhua Bio with a short position of Nanjing Medlander. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nanhua Bio and Nanjing Medlander.

Diversification Opportunities for Nanhua Bio and Nanjing Medlander

0.88

Correlation Coefficient

Nanhua Bio  Nanjing Medlander

Very poor diversification

The 3 months correlation between Nanhua and Nanjing is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Nanhua Bio Medicine and Nanjing Medlander Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanjing Medlander Medical and Nanhua Bio 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 Nanhua Bio Medicine are associated (or correlated) with Nanjing Medlander. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanjing Medlander Medical has no effect on the direction of Nanhua Bio i.e., Nanhua Bio and Nanjing Medlander go up and down completely randomly.

Pair Corralation between Nanhua Bio and Nanjing Medlander

Assuming the 90 days trading horizon Nanhua Bio Medicine is expected to generate 1.12 times more return on investment than Nanjing Medlander. However, Nanhua Bio is 1.12 times more volatile than Nanjing Medlander Medical. It trades about 0.14 of its potential returns per unit of risk. Nanjing Medlander Medical is currently generating about 0.13 per unit of risk. If you would invest  793.00  in Nanhua Bio Medicine on September 4, 2024 and sell it today you would earn a total of  244.00  from holding Nanhua Bio Medicine or generate 30.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Nanhua Bio Medicine  vs.  Nanjing Medlander Medical

Nanhua Bio Medicine

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nanhua Bio Medicine are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanhua Bio sustained solid returns over the last few months and may actually be approaching a breakup point.

Nanjing Medlander Medical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nanjing Medlander Medical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanjing Medlander sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nanhua Bio and Nanjing Medlander

The main advantage of trading using opposite Nanhua Bio and Nanjing Medlander positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nanhua Bio position performs unexpectedly, Nanjing Medlander 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 Nanjing Medlander will offset losses from the drop in Nanjing Medlander's long position.

The idea behind Nanhua Bio Medicine and Nanjing Medlander Medical 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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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.