Correlation Between Elite Color and Guangdong Tianhe

Can any of the company-specific risk be diversified away by investing in both Elite Color and Guangdong Tianhe 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 Guangdong Tianhe 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 Guangdong Tianhe Agricultural, you can compare the effects of market volatilities on Elite Color and Guangdong Tianhe 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 Guangdong Tianhe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Color and Guangdong Tianhe.

Diversification Opportunities for Elite Color and Guangdong Tianhe

0.83

Correlation Coefficient

Elite Color  Guangdong Tianhe

Very poor diversification

The 3 months correlation between Elite and Guangdong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Elite Color Environmental and Guangdong Tianhe Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Tianhe Agr 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 Guangdong Tianhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Tianhe Agr has no effect on the direction of Elite Color i.e., Elite Color and Guangdong Tianhe go up and down completely randomly.

Pair Corralation between Elite Color and Guangdong Tianhe

Assuming the 90 days trading horizon Elite Color Environmental is expected to generate 0.82 times more return on investment than Guangdong Tianhe. However, Elite Color Environmental is 1.23 times less risky than Guangdong Tianhe. It trades about 0.01 of its potential returns per unit of risk. Guangdong Tianhe Agricultural is currently generating about 0.0 per unit of risk. If you would invest  630.00  in Elite Color Environmental on October 5, 2024 and sell it today you would lose (4.00) from holding Elite Color Environmental or give up 0.63% of portfolio value over 90 days.

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

Elite Color Environmental  vs.  Guangdong Tianhe Agricultural

Elite Color Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangdong Tianhe Agr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Tianhe Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Tianhe 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 Guangdong Tianhe

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

The idea behind Elite Color Environmental and Guangdong Tianhe Agricultural 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..