Correlation Between Eternal Asia and China Longyuan

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

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

Diversification Opportunities for Eternal Asia and China Longyuan

0.82

Correlation Coefficient

Eternal Asia  China Longyuan

Very poor diversification

The 3 months correlation between Eternal and China is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Eternal Asia Supply and China Longyuan Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Longyuan Power and Eternal Asia 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 Eternal Asia Supply are associated (or correlated) with China Longyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Longyuan Power has no effect on the direction of Eternal Asia i.e., Eternal Asia and China Longyuan go up and down completely randomly.

Pair Corralation between Eternal Asia and China Longyuan

Assuming the 90 days trading horizon Eternal Asia Supply is expected to under-perform the China Longyuan. In addition to that, Eternal Asia is 1.29 times more volatile than China Longyuan Power. It trades about -0.02 of its total potential returns per unit of risk. China Longyuan Power is currently generating about -0.02 per unit of volatility. If you would invest  1,880  in China Longyuan Power on October 11, 2024 and sell it today you would lose (398.00) from holding China Longyuan Power or give up 21.17% of portfolio value over 90 days.

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

Eternal Asia Supply  vs.  China Longyuan Power

Eternal Asia Supply

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eternal Asia Supply are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eternal Asia sustained solid returns over the last few months and may actually be approaching a breakup point.

China Longyuan Power

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Eternal Asia and China Longyuan

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

The idea behind Eternal Asia Supply and China Longyuan Power 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.