Correlation Between China Life and Focus Media

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

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

Diversification Opportunities for China Life and Focus Media

0.9

Correlation Coefficient

China Life  Focus Media

Almost no diversification

The 3 months correlation between China and Focus is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Focus Media Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Media Information and China Life 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 Life Insurance are associated (or correlated) with Focus Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Media Information has no effect on the direction of China Life i.e., China Life and Focus Media go up and down completely randomly.

Pair Corralation between China Life and Focus Media

Assuming the 90 days trading horizon China Life is expected to generate 1.19 times less return on investment than Focus Media. In addition to that, China Life is 1.26 times more volatile than Focus Media Information. It trades about 0.03 of its total potential returns per unit of risk. Focus Media Information is currently generating about 0.05 per unit of volatility. If you would invest  697.00  in Focus Media Information on September 28, 2024 and sell it today you would earn a total of  9.00  from holding Focus Media Information or generate 1.29% return on investment over 90 days.

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

China Life Insurance  vs.  Focus Media Information

China Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Life is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Focus Media Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Media Information has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Focus Media is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Life and Focus Media

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

The idea behind China Life Insurance and Focus Media Information 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.