Correlation Between China Life and Hangzhou Coco

Can any of the company-specific risk be diversified away by investing in both China Life and Hangzhou Coco 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 Hangzhou Coco 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 Hangzhou Coco Healthcare, you can compare the effects of market volatilities on China Life and Hangzhou Coco 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 Hangzhou Coco. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Life and Hangzhou Coco.

Diversification Opportunities for China Life and Hangzhou Coco

0.85

Correlation Coefficient

China Life  Hangzhou Coco

Very poor diversification

The 3 months correlation between China and Hangzhou is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Hangzhou Coco Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Coco Healthcare 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 Hangzhou Coco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Coco Healthcare has no effect on the direction of China Life i.e., China Life and Hangzhou Coco go up and down completely randomly.

Pair Corralation between China Life and Hangzhou Coco

Assuming the 90 days trading horizon China Life is expected to generate 1.11 times less return on investment than Hangzhou Coco. But when comparing it to its historical volatility, China Life Insurance is 1.03 times less risky than Hangzhou Coco. It trades about 0.16 of its potential returns per unit of risk. Hangzhou Coco Healthcare is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  726.00  in Hangzhou Coco Healthcare on September 12, 2024 and sell it today you would earn a total of  253.00  from holding Hangzhou Coco Healthcare or generate 34.85% return on investment over 90 days.

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

China Life Insurance  vs.  Hangzhou Coco Healthcare

China Life Insurance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Hangzhou Coco Healthcare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Coco Healthcare are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Coco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Life and Hangzhou Coco

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

The idea behind China Life Insurance and Hangzhou Coco Healthcare 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.