Correlation Between Elite Color and City Development

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

By analyzing existing cross correlation between Elite Color Environmental and City Development Environment, you can compare the effects of market volatilities on Elite Color and City Development 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 Elite Color with a short position of City Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Color and City Development.

Diversification Opportunities for Elite Color and City Development

0.79

Correlation Coefficient

Elite Color  City Development

Poor diversification

The 3 months correlation between Elite and City is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Elite Color Environmental and City Development Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Development Env and Elite Color 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 Elite Color Environmental are associated (or correlated) with City Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Development Env has no effect on the direction of Elite Color i.e., Elite Color and City Development go up and down completely randomly.

Pair Corralation between Elite Color and City Development

Assuming the 90 days trading horizon Elite Color Environmental is expected to under-perform the City Development. In addition to that, Elite Color is 1.94 times more volatile than City Development Environment. It trades about -0.21 of its total potential returns per unit of risk. City Development Environment is currently generating about -0.38 per unit of volatility. If you would invest  1,375  in City Development Environment on October 12, 2024 and sell it today you would lose (141.00) from holding City Development Environment or give up 10.25% of portfolio value over 90 days.

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

Elite Color Environmental  vs.  City Development Environment

Elite Color Environmental

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Color Environmental are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elite Color may actually be approaching a critical reversion point that can send shares even higher in February 2025.

City Development Env

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Elite Color and City Development

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

The idea behind Elite Color Environmental and City Development Environment 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.