Correlation Between Fondo Mutuo and China Securities

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

By analyzing existing cross correlation between Fondo Mutuo ETF and China Securities 800, you can compare the effects of market volatilities on Fondo Mutuo and China 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 Fondo Mutuo with a short position of China Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fondo Mutuo and China Securities.

Diversification Opportunities for Fondo Mutuo and China Securities

0.45

Correlation Coefficient

Fondo Mutuo  China Securities

Very weak diversification

The 3 months correlation between Fondo and China is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Fondo Mutuo ETF and China Securities 800 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Securities 800 and Fondo Mutuo 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 Fondo Mutuo ETF are associated (or correlated) with China Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Securities 800 has no effect on the direction of Fondo Mutuo i.e., Fondo Mutuo and China Securities go up and down completely randomly.

Pair Corralation between Fondo Mutuo and China Securities

Assuming the 90 days trading horizon Fondo Mutuo ETF is expected to generate 0.76 times more return on investment than China Securities. However, Fondo Mutuo ETF is 1.31 times less risky than China Securities. It trades about 0.29 of its potential returns per unit of risk. China Securities 800 is currently generating about 0.08 per unit of risk. If you would invest  138,175  in Fondo Mutuo ETF on January 4, 2025 and sell it today you would earn a total of  18,235  from holding Fondo Mutuo ETF or generate 13.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.63%
Values	Daily Returns

Fondo Mutuo ETF  vs.  China Securities 800

Pair Trading with Fondo Mutuo and China Securities

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

The idea behind Fondo Mutuo ETF and China Securities 800 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.