Correlation Between Montage Technology and New China

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

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

Diversification Opportunities for Montage Technology and New China

0.86

Correlation Coefficient

Montage Technology  New China

Very poor diversification

The 3 months correlation between Montage and New is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Montage Technology Co and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and Montage Technology 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 Montage Technology Co are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Montage Technology i.e., Montage Technology and New China go up and down completely randomly.

Pair Corralation between Montage Technology and New China

Assuming the 90 days trading horizon Montage Technology is expected to generate 1.52 times less return on investment than New China. In addition to that, Montage Technology is 1.3 times more volatile than New China Life. It trades about 0.03 of its total potential returns per unit of risk. New China Life is currently generating about 0.05 per unit of volatility. If you would invest  3,177  in New China Life on September 29, 2024 and sell it today you would earn a total of  1,882  from holding New China Life or generate 59.24% return on investment over 90 days.

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

Montage Technology Co  vs.  New China Life

Montage Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Montage Technology Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Montage Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

New China Life

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Montage Technology and New China

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

The idea behind Montage Technology Co and New China Life 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.