Correlation Between China Bills and Capital Securities

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

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

Diversification Opportunities for China Bills and Capital Securities

0.76

Correlation Coefficient

China Bills  Capital Securities

Poor diversification

The 3 months correlation between China and Capital is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding China Bills Finance and Capital Securities Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Securities Corp and China Bills 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 Bills Finance are associated (or correlated) with Capital Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Securities Corp has no effect on the direction of China Bills i.e., China Bills and Capital Securities go up and down completely randomly.

Pair Corralation between China Bills and Capital Securities

Assuming the 90 days trading horizon China Bills Finance is expected to under-perform the Capital Securities. But the stock apears to be less risky and, when comparing its historical volatility, China Bills Finance is 2.22 times less risky than Capital Securities. The stock trades about -0.01 of its potential returns per unit of risk. The Capital Securities Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,239  in Capital Securities Corp on March 7, 2024 and sell it today you would earn a total of  1,101  from holding Capital Securities Corp or generate 88.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

China Bills Finance  vs.  Capital Securities Corp

China Bills Finance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Bills Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Bills is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Capital Securities Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Securities Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Capital Securities showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Bills and Capital Securities

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

The idea behind China Bills Finance and Capital Securities Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.