Correlation Between China Finance and Liberty Defense

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

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

Diversification Opportunities for China Finance and Liberty Defense

0.0

Correlation Coefficient

China Finance  Liberty Defense

Pay attention - limited upside

The 3 months correlation between China and Liberty is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Finance Online and Liberty Defense Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Defense Holdings and China Finance 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 Finance Online are associated (or correlated) with Liberty Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Defense Holdings has no effect on the direction of China Finance i.e., China Finance and Liberty Defense go up and down completely randomly.

Pair Corralation between China Finance and Liberty Defense

If you would invest  41.00  in Liberty Defense Holdings on September 19, 2024 and sell it today you would earn a total of  18.00  from holding Liberty Defense Holdings or generate 43.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

China Finance Online  vs.  Liberty Defense Holdings

China Finance Online

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Finance Online has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, China Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Liberty Defense Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Defense Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Liberty Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Finance and Liberty Defense

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

The idea behind China Finance Online and Liberty Defense 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.