Correlation Between Elite Color and Zhonghong Pulin

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

Diversification Opportunities for Elite Color and Zhonghong Pulin

0.85

Correlation Coefficient

Elite Color  Zhonghong Pulin

Very poor diversification

The 3 months correlation between Elite and Zhonghong is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Elite Color Environmental and Zhonghong Pulin Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhonghong Pulin Medical 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 Zhonghong Pulin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhonghong Pulin Medical has no effect on the direction of Elite Color i.e., Elite Color and Zhonghong Pulin go up and down completely randomly.

Pair Corralation between Elite Color and Zhonghong Pulin

Assuming the 90 days trading horizon Elite Color Environmental is expected to generate 1.25 times more return on investment than Zhonghong Pulin. However, Elite Color is 1.25 times more volatile than Zhonghong Pulin Medical. It trades about -0.26 of its potential returns per unit of risk. Zhonghong Pulin Medical is currently generating about -0.49 per unit of risk. If you would invest  684.00  in Elite Color Environmental on October 7, 2024 and sell it today you would lose (90.00) from holding Elite Color Environmental or give up 13.16% 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.  Zhonghong Pulin Medical

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.

Zhonghong Pulin Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhonghong Pulin Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Elite Color and Zhonghong Pulin

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

The idea behind Elite Color Environmental and Zhonghong Pulin Medical 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.