Correlation Between China Development and Chi Hua

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both China Development and Chi Hua 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 China Development and Chi Hua into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Development Financial and Chi Hua Fitness, you can compare the effects of market volatilities on China Development and Chi Hua 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 China Development with a short position of Chi Hua. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Chi Hua.

Diversification Opportunities for China Development and Chi Hua

-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between China and Chi is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Chi Hua Fitness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chi Hua Fitness and China Development 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 China Development Financial are associated (or correlated) with Chi Hua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chi Hua Fitness has no effect on the direction of China Development i.e., China Development and Chi Hua go up and down completely randomly.

Pair Corralation between China Development and Chi Hua

Assuming the 90 days trading horizon China Development is expected to generate 5.84 times less return on investment than Chi Hua. But when comparing it to its historical volatility, China Development Financial is 12.28 times less risky than Chi Hua. It trades about 0.06 of its potential returns per unit of risk. Chi Hua Fitness is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,349  in Chi Hua Fitness on September 6, 2024 and sell it today you would lose (2,609) from holding Chi Hua Fitness or give up 41.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

China Development Financial  vs.  Chi Hua Fitness

 Performance 
       Timeline  
China Development 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Development may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Chi Hua Fitness 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Chi Hua Fitness has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

China Development and Chi Hua Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Development and Chi Hua

The main advantage of trading using opposite China Development and Chi Hua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Development position performs unexpectedly, Chi Hua 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 Chi Hua will offset losses from the drop in Chi Hua's long position.
The idea behind China Development Financial and Chi Hua Fitness 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

Other Complementary Tools

Competition Analyzer
Analyze and compare many basic indicators for a group of related or unrelated entities
Bollinger Bands
Use Bollinger Bands indicator to analyze target price for a given investing horizon
Analyst Advice
Analyst recommendations and target price estimates broken down by several categories
Premium Stories
Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope
Share Portfolio
Track or share privately all of your investments from the convenience of any device