Correlation Between China Reform and Cultural Investment

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

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

Diversification Opportunities for China Reform and Cultural Investment

0.6

Correlation Coefficient

China Reform  Cultural Investment

Poor diversification

The 3 months correlation between China and Cultural is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding China Reform Health and Cultural Investment Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cultural Investment and China Reform 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 Reform Health are associated (or correlated) with Cultural Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cultural Investment has no effect on the direction of China Reform i.e., China Reform and Cultural Investment go up and down completely randomly.

Pair Corralation between China Reform and Cultural Investment

Assuming the 90 days trading horizon China Reform Health is expected to under-perform the Cultural Investment. In addition to that, China Reform is 1.5 times more volatile than Cultural Investment Holdings. It trades about -0.02 of its total potential returns per unit of risk. Cultural Investment Holdings is currently generating about 0.0 per unit of volatility. If you would invest  247.00  in Cultural Investment Holdings on September 14, 2024 and sell it today you would lose (2.00) from holding Cultural Investment Holdings or give up 0.81% of portfolio value over 90 days.

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

China Reform Health  vs.  Cultural Investment Holdings

China Reform Health

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Reform Health are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Reform sustained solid returns over the last few months and may actually be approaching a breakup point.

Cultural Investment

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cultural Investment Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cultural Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Reform and Cultural Investment

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

The idea behind China Reform Health and Cultural Investment 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.