Correlation Between China Health and TransAKT

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

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

Diversification Opportunities for China Health and TransAKT

0.06

Correlation Coefficient

China Health  TransAKT

Significant diversification

The 3 months correlation between China and TransAKT is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding China Health Management and TransAKT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAKT and China Health 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 Health Management are associated (or correlated) with TransAKT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAKT has no effect on the direction of China Health i.e., China Health and TransAKT go up and down completely randomly.

Pair Corralation between China Health and TransAKT

Given the investment horizon of 90 days China Health Management is expected to under-perform the TransAKT. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Health Management is 12.97 times less risky than TransAKT. The pink sheet trades about -0.08 of its potential returns per unit of risk. The TransAKT is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1.01  in TransAKT on September 4, 2024 and sell it today you would earn a total of  1.76  from holding TransAKT or generate 174.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

China Health Management  vs.  TransAKT

China Health Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Health Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

TransAKT

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TransAKT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward-looking signals, TransAKT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Health and TransAKT

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

The idea behind China Health Management and TransAKT 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.