Correlation Between Eternal Materials and China Petrochemical

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

By analyzing existing cross correlation between Eternal Materials Co and China Petrochemical Development, you can compare the effects of market volatilities on Eternal Materials and China Petrochemical 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 Eternal Materials with a short position of China Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eternal Materials and China Petrochemical.

Diversification Opportunities for Eternal Materials and China Petrochemical

0.82

Correlation Coefficient

Eternal Materials  China Petrochemical

Very poor diversification

The 3 months correlation between Eternal and China is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Eternal Materials Co and China Petrochemical Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petrochemical and Eternal Materials 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 Eternal Materials Co are associated (or correlated) with China Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petrochemical has no effect on the direction of Eternal Materials i.e., Eternal Materials and China Petrochemical go up and down completely randomly.

Pair Corralation between Eternal Materials and China Petrochemical

Assuming the 90 days trading horizon Eternal Materials Co is expected to generate 0.81 times more return on investment than China Petrochemical. However, Eternal Materials Co is 1.23 times less risky than China Petrochemical. It trades about -0.05 of its potential returns per unit of risk. China Petrochemical Development is currently generating about -0.14 per unit of risk. If you would invest  3,110  in Eternal Materials Co on September 23, 2024 and sell it today you would lose (360.00) from holding Eternal Materials Co or give up 11.58% of portfolio value over 90 days.

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

Eternal Materials Co  vs.  China Petrochemical Developmen

Eternal Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eternal Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

China Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Petrochemical Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Eternal Materials and China Petrochemical

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

The idea behind Eternal Materials Co and China Petrochemical Development 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.