Correlation Between China and Aeon

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

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

Diversification Opportunities for China and Aeon

-0.82

Correlation Coefficient

China  Aeon

Pay attention - limited upside

The 3 months correlation between China and Aeon is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding China Motor Corp and Aeon Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeon Motor and China 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 Motor Corp are associated (or correlated) with Aeon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeon Motor has no effect on the direction of China i.e., China and Aeon go up and down completely randomly.

Pair Corralation between China and Aeon

Assuming the 90 days trading horizon China Motor Corp is expected to generate 5.31 times more return on investment than Aeon. However, China is 5.31 times more volatile than Aeon Motor Co. It trades about 0.16 of its potential returns per unit of risk. Aeon Motor Co is currently generating about -0.15 per unit of risk. If you would invest  13,200  in China Motor Corp on February 2, 2024 and sell it today you would earn a total of  1,150  from holding China Motor Corp or generate 8.71% return on investment over 90 days.

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

China Motor Corp  vs.  Aeon Motor Co

China Motor Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Motor Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China showed solid returns over the last few months and may actually be approaching a breakup point.

Aeon Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeon Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China and Aeon

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

The idea behind China Motor Corp and Aeon Motor Co 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.