Correlation Between Wei Chuan and ESUN Financial

Can any of the company-specific risk be diversified away by investing in both Wei Chuan and ESUN Financial 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 Wei Chuan and ESUN Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wei Chuan Foods and ESUN Financial Holding, you can compare the effects of market volatilities on Wei Chuan and ESUN Financial 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 Wei Chuan with a short position of ESUN Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wei Chuan and ESUN Financial.

Diversification Opportunities for Wei Chuan and ESUN Financial

0.28

Correlation Coefficient

Wei Chuan  ESUN Financial

Modest diversification

The 3 months correlation between Wei and ESUN is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Wei Chuan Foods and ESUN Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESUN Financial Holding and Wei Chuan 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 Wei Chuan Foods are associated (or correlated) with ESUN Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESUN Financial Holding has no effect on the direction of Wei Chuan i.e., Wei Chuan and ESUN Financial go up and down completely randomly.

Pair Corralation between Wei Chuan and ESUN Financial

Assuming the 90 days trading horizon Wei Chuan Foods is expected to under-perform the ESUN Financial. But the stock apears to be less risky and, when comparing its historical volatility, Wei Chuan Foods is 1.56 times less risky than ESUN Financial. The stock trades about -0.02 of its potential returns per unit of risk. The ESUN Financial Holding is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,393  in ESUN Financial Holding on September 19, 2024 and sell it today you would earn a total of  362.00  from holding ESUN Financial Holding or generate 15.13% return on investment over 90 days.

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

Wei Chuan Foods  vs.  ESUN Financial Holding

Wei Chuan Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wei Chuan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wei Chuan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ESUN Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESUN Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ESUN Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Wei Chuan and ESUN Financial

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

The idea behind Wei Chuan Foods and ESUN Financial Holding 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.