Correlation Between Zhongtong Guomai and China National

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

By analyzing existing cross correlation between Zhongtong Guomai Communication and China National Software, you can compare the effects of market volatilities on Zhongtong Guomai and China National 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 Zhongtong Guomai with a short position of China National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongtong Guomai and China National.

Diversification Opportunities for Zhongtong Guomai and China National

0.87

Correlation Coefficient

Zhongtong Guomai  China National

Very poor diversification

The 3 months correlation between Zhongtong and China is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Zhongtong Guomai Communication and China National Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Software and Zhongtong Guomai 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 Zhongtong Guomai Communication are associated (or correlated) with China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Software has no effect on the direction of Zhongtong Guomai i.e., Zhongtong Guomai and China National go up and down completely randomly.

Pair Corralation between Zhongtong Guomai and China National

Assuming the 90 days trading horizon Zhongtong Guomai is expected to generate 1.53 times less return on investment than China National. In addition to that, Zhongtong Guomai is 1.21 times more volatile than China National Software. It trades about 0.05 of its total potential returns per unit of risk. China National Software is currently generating about 0.08 per unit of volatility. If you would invest  4,191  in China National Software on September 30, 2024 and sell it today you would earn a total of  751.00  from holding China National Software or generate 17.92% return on investment over 90 days.

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

Zhongtong Guomai Communication  vs.  China National Software

Zhongtong Guomai Com

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongtong Guomai Communication are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongtong Guomai sustained solid returns over the last few months and may actually be approaching a breakup point.

China National Software

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China National Software are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhongtong Guomai and China National

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

The idea behind Zhongtong Guomai Communication and China National Software 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.