Correlation Between Central Reinsurance and Great China

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

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

Diversification Opportunities for Central Reinsurance and Great China

-0.07

Correlation Coefficient

Central Reinsurance  Great China

Good diversification

The 3 months correlation between Central and Great is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Central Reinsurance Corp and Great China Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great China Metal and Central Reinsurance 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 Central Reinsurance Corp are associated (or correlated) with Great China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great China Metal has no effect on the direction of Central Reinsurance i.e., Central Reinsurance and Great China go up and down completely randomly.

Pair Corralation between Central Reinsurance and Great China

Assuming the 90 days trading horizon Central Reinsurance Corp is expected to under-perform the Great China. In addition to that, Central Reinsurance is 2.45 times more volatile than Great China Metal. It trades about -0.05 of its total potential returns per unit of risk. Great China Metal is currently generating about -0.02 per unit of volatility. If you would invest  2,305  in Great China Metal on September 3, 2024 and sell it today you would lose (15.00) from holding Great China Metal or give up 0.65% of portfolio value over 90 days.

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

Central Reinsurance Corp  vs.  Great China Metal

Central Reinsurance Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Great China Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Central Reinsurance and Great China

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

The idea behind Central Reinsurance Corp and Great China Metal 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.