Correlation Between Nan Ya and China

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

By analyzing existing cross correlation between Nan Ya Plastics and China Motor Corp, you can compare the effects of market volatilities on Nan Ya and China 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 Nan Ya with a short position of China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nan Ya and China.

Diversification Opportunities for Nan Ya and China

-0.26

Correlation Coefficient

Nan Ya  China

Very good diversification

The 3 months correlation between Nan and China is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Nan Ya Plastics and China Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Motor Corp and Nan Ya 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 Nan Ya Plastics are associated (or correlated) with China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Motor Corp has no effect on the direction of Nan Ya i.e., Nan Ya and China go up and down completely randomly.

Pair Corralation between Nan Ya and China

Assuming the 90 days trading horizon Nan Ya Plastics is expected to under-perform the China. But the stock apears to be less risky and, when comparing its historical volatility, Nan Ya Plastics is 1.45 times less risky than China. The stock trades about -0.02 of its potential returns per unit of risk. The China Motor Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,080  in China Motor Corp on September 4, 2024 and sell it today you would earn a total of  1,390  from holding China Motor Corp or generate 19.63% return on investment over 90 days.

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

Nan Ya Plastics  vs.  China Motor Corp

Nan Ya Plastics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nan Ya Plastics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Nan Ya is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

China Motor Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Motor Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nan Ya and China

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

The idea behind Nan Ya Plastics and China Motor Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.