Correlation Between Elite Material and Zhen Ding

Can any of the company-specific risk be diversified away by investing in both Elite Material and Zhen Ding 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 Material and Zhen Ding into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elite Material Co and Zhen Ding Technology, you can compare the effects of market volatilities on Elite Material and Zhen Ding 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 Material with a short position of Zhen Ding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Material and Zhen Ding.

Diversification Opportunities for Elite Material and Zhen Ding

0.71

Correlation Coefficient

Elite Material  Zhen Ding

Poor diversification

The 3 months correlation between Elite and Zhen is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Elite Material Co and Zhen Ding Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhen Ding Technology and Elite Material 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 Material Co are associated (or correlated) with Zhen Ding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhen Ding Technology has no effect on the direction of Elite Material i.e., Elite Material and Zhen Ding go up and down completely randomly.

Pair Corralation between Elite Material and Zhen Ding

Assuming the 90 days trading horizon Elite Material Co is expected to generate 1.44 times more return on investment than Zhen Ding. However, Elite Material is 1.44 times more volatile than Zhen Ding Technology. It trades about 0.32 of its potential returns per unit of risk. Zhen Ding Technology is currently generating about 0.15 per unit of risk. If you would invest  43,150  in Elite Material Co on October 7, 2024 and sell it today you would earn a total of  17,250  from holding Elite Material Co or generate 39.98% return on investment over 90 days.

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

Elite Material Co  vs.  Zhen Ding Technology

Elite Material

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Material Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Elite Material showed solid returns over the last few months and may actually be approaching a breakup point.

Zhen Ding Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhen Ding Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Zhen Ding may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Elite Material and Zhen Ding

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

The idea behind Elite Material Co and Zhen Ding Technology 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.