Correlation Between China Index and CDK Global

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

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

Diversification Opportunities for China Index and CDK Global

-0.2

Correlation Coefficient

China Index  CDK Global

Good diversification

The 3 months correlation between China and CDK is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Index Holdings and CDK Global Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDK Global Holdings and China Index 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 Index Holdings are associated (or correlated) with CDK Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDK Global Holdings has no effect on the direction of China Index i.e., China Index and CDK Global go up and down completely randomly.

Pair Corralation between China Index and CDK Global

If you would invest  5,476  in CDK Global Holdings on January 17, 2024 and sell it today you would earn a total of  0.00  from holding CDK Global Holdings or generate 0.0% return on investment over 90 days.

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

China Index Holdings  vs.  CDK Global Holdings

China Index Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Index Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, China Index is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

CDK Global Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CDK Global Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, CDK Global is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with China Index and CDK Global

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

The idea behind China Index Holdings and CDK Global 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.