Correlation Between China Taiping and Sea

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

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

Diversification Opportunities for China Taiping and Sea

0.09

Correlation Coefficient

China Taiping  Sea

Significant diversification

The 3 months correlation between China and Sea is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding China Taiping Insurance and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea and China Taiping 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 Taiping Insurance are associated (or correlated) with Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of China Taiping i.e., China Taiping and Sea go up and down completely randomly.

Pair Corralation between China Taiping and Sea

Assuming the 90 days horizon China Taiping is expected to generate 12.91 times less return on investment than Sea. But when comparing it to its historical volatility, China Taiping Insurance is 1.07 times less risky than Sea. It trades about 0.01 of its potential returns per unit of risk. Sea is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,669  in Sea on July 10, 2024 and sell it today you would earn a total of  4,846  from holding Sea or generate 103.79% return on investment over 90 days.

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

China Taiping Insurance  vs.  Sea

China Taiping Insurance

Risk-Adjusted Performance

0 of 100

OK

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

Sea

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Taiping and Sea

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

The idea behind China Taiping Insurance and Sea 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.