Correlation Between Central Plains and China Everbright

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

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

Diversification Opportunities for Central Plains and China Everbright

-0.37

Correlation Coefficient

Central Plains  China Everbright

Very good diversification

The 3 months correlation between Central and China is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Central Plains Environment and China Everbright Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright Bank and Central Plains 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 Central Plains Environment are associated (or correlated) with China Everbright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Everbright Bank has no effect on the direction of Central Plains i.e., Central Plains and China Everbright go up and down completely randomly.

Pair Corralation between Central Plains and China Everbright

Assuming the 90 days trading horizon Central Plains Environment is expected to under-perform the China Everbright. But the stock apears to be less risky and, when comparing its historical volatility, Central Plains Environment is 1.41 times less risky than China Everbright. The stock trades about -0.09 of its potential returns per unit of risk. The China Everbright Bank is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  381.00  in China Everbright Bank on October 27, 2024 and sell it today you would earn a total of  6.00  from holding China Everbright Bank or generate 1.57% return on investment over 90 days.

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

Central Plains Environment  vs.  China Everbright Bank

Central Plains Envir

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Plains Environment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Plains is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Everbright Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Everbright sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Plains and China Everbright

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

The idea behind Central Plains Environment and China Everbright Bank 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..