Correlation Between Zhejiang Construction and CareRay Digital

Can any of the company-specific risk be diversified away by investing in both Zhejiang Construction and CareRay Digital 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 Zhejiang Construction and CareRay Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Construction Investment and CareRay Digital Medical, you can compare the effects of market volatilities on Zhejiang Construction and CareRay Digital 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 Zhejiang Construction with a short position of CareRay Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Construction and CareRay Digital.

Diversification Opportunities for Zhejiang Construction and CareRay Digital

0.86

Correlation Coefficient

Zhejiang Construction  CareRay Digital

Very poor diversification

The 3 months correlation between Zhejiang and CareRay is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and CareRay Digital Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CareRay Digital Medical and Zhejiang Construction 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 Zhejiang Construction Investment are associated (or correlated) with CareRay Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CareRay Digital Medical has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and CareRay Digital go up and down completely randomly.

Pair Corralation between Zhejiang Construction and CareRay Digital

Assuming the 90 days trading horizon Zhejiang Construction is expected to generate 1.26 times less return on investment than CareRay Digital. In addition to that, Zhejiang Construction is 1.2 times more volatile than CareRay Digital Medical. It trades about 0.16 of its total potential returns per unit of risk. CareRay Digital Medical is currently generating about 0.25 per unit of volatility. If you would invest  1,004  in CareRay Digital Medical on September 15, 2024 and sell it today you would earn a total of  568.00  from holding CareRay Digital Medical or generate 56.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Zhejiang Construction Investme  vs.  CareRay Digital Medical

Zhejiang Construction

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Construction Investment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

CareRay Digital Medical

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CareRay Digital Medical are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CareRay Digital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Construction and CareRay Digital

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

The idea behind Zhejiang Construction Investment and CareRay Digital 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.