Correlation Between China Overseas and Country Garden

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

By analyzing existing cross correlation between China Overseas Land and Country Garden Holdings, you can compare the effects of market volatilities on China Overseas and Country Garden 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 Overseas with a short position of Country Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Overseas and Country Garden.

Diversification Opportunities for China Overseas and Country Garden

0.83

Correlation Coefficient

China Overseas  Country Garden

Very poor diversification

The 3 months correlation between China and Country is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding China Overseas Land and Country Garden Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Country Garden Holdings and China Overseas 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 Overseas Land are associated (or correlated) with Country Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Country Garden Holdings has no effect on the direction of China Overseas i.e., China Overseas and Country Garden go up and down completely randomly.

Pair Corralation between China Overseas and Country Garden

Assuming the 90 days horizon China Overseas Land is expected to under-perform the Country Garden. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Overseas Land is 1.57 times less risky than Country Garden. The pink sheet trades about -0.29 of its potential returns per unit of risk. The Country Garden Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  375.00  in Country Garden Holdings on September 5, 2024 and sell it today you would earn a total of  0.00  from holding Country Garden Holdings or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	47.62%
Values	Daily Returns

China Overseas Land  vs.  Country Garden Holdings

China Overseas Land

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Overseas Land are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, China Overseas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Country Garden Holdings

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Country Garden Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Country Garden showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Overseas and Country Garden

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

The idea behind China Overseas Land and Country Garden Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.