Correlation Between SPBVL Peru and China Securities

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

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

Diversification Opportunities for SPBVL Peru and China Securities

0.04

Correlation Coefficient

SPBVL Peru  China Securities

Significant diversification

The 3 months correlation between SPBVL and China is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding SPBVL Peru General 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 SPBVL Peru 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 SPBVL Peru General 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 SPBVL Peru i.e., SPBVL Peru and China Securities go up and down completely randomly.

Pair Corralation between SPBVL Peru and China Securities

Assuming the 90 days trading horizon SPBVL Peru is expected to generate 1.64 times less return on investment than China Securities. But when comparing it to its historical volatility, SPBVL Peru General is 1.21 times less risky than China Securities. It trades about 0.07 of its potential returns per unit of risk. China Securities 800 is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  404,252  in China Securities 800 on January 3, 2025 and sell it today you would earn a total of  17,592  from holding China Securities 800 or generate 4.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.19%
Values	Daily Returns

SPBVL Peru General  vs.  China Securities 800

Pair Trading with SPBVL Peru and China Securities

The main advantage of trading using opposite SPBVL Peru and China Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPBVL Peru 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 SPBVL Peru General 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.