Correlation Between China Ecotek and Drewloong Precision

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

By analyzing existing cross correlation between China Ecotek Corp and Drewloong Precision, you can compare the effects of market volatilities on China Ecotek and Drewloong Precision 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 China Ecotek with a short position of Drewloong Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Ecotek and Drewloong Precision.

Diversification Opportunities for China Ecotek and Drewloong Precision

-0.16

Correlation Coefficient

China Ecotek  Drewloong Precision

Good diversification

The 3 months correlation between China and Drewloong is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Ecotek Corp and Drewloong Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drewloong Precision and China Ecotek 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 China Ecotek Corp are associated (or correlated) with Drewloong Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drewloong Precision has no effect on the direction of China Ecotek i.e., China Ecotek and Drewloong Precision go up and down completely randomly.

Pair Corralation between China Ecotek and Drewloong Precision

Assuming the 90 days trading horizon China Ecotek Corp is expected to under-perform the Drewloong Precision. But the stock apears to be less risky and, when comparing its historical volatility, China Ecotek Corp is 2.58 times less risky than Drewloong Precision. The stock trades about -0.09 of its potential returns per unit of risk. The Drewloong Precision is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  15,250  in Drewloong Precision on December 30, 2024 and sell it today you would earn a total of  2,750  from holding Drewloong Precision or generate 18.03% return on investment over 90 days.

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

China Ecotek Corp  vs.  Drewloong Precision

China Ecotek Corp

Risk-Adjusted Performance

Very Weak

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

Drewloong Precision

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Drewloong Precision are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Drewloong Precision showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Ecotek and Drewloong Precision

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

The idea behind China Ecotek Corp and Drewloong Precision 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.