Correlation Between Beijing Wandong and China Life

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

By analyzing existing cross correlation between Beijing Wandong Medical and China Life Insurance, you can compare the effects of market volatilities on Beijing Wandong and China Life 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 Beijing Wandong with a short position of China Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Wandong and China Life.

Diversification Opportunities for Beijing Wandong and China Life

0.53

Correlation Coefficient

Beijing Wandong  China Life

Very weak diversification

The 3 months correlation between Beijing and China is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Wandong Medical and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and Beijing Wandong 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 Beijing Wandong Medical are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Beijing Wandong i.e., Beijing Wandong and China Life go up and down completely randomly.

Pair Corralation between Beijing Wandong and China Life

Assuming the 90 days trading horizon Beijing Wandong Medical is expected to generate 0.97 times more return on investment than China Life. However, Beijing Wandong Medical is 1.04 times less risky than China Life. It trades about 0.11 of its potential returns per unit of risk. China Life Insurance is currently generating about 0.06 per unit of risk. If you would invest  1,322  in Beijing Wandong Medical on September 26, 2024 and sell it today you would earn a total of  248.00  from holding Beijing Wandong Medical or generate 18.76% return on investment over 90 days.

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

Beijing Wandong Medical  vs.  China Life Insurance

Beijing Wandong Medical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Wandong Medical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Wandong sustained solid returns over the last few months and may actually be approaching a breakup point.

China Life Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Beijing Wandong and China Life

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

The idea behind Beijing Wandong Medical and China Life Insurance 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.