Correlation Between China Development and Evermore Chemical

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

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

Diversification Opportunities for China Development and Evermore Chemical

-0.7

Correlation Coefficient

China Development  Evermore Chemical

Excellent diversification

The 3 months correlation between China and Evermore is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Evermore Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evermore Chemical and China Development 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 Development Financial are associated (or correlated) with Evermore Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evermore Chemical has no effect on the direction of China Development i.e., China Development and Evermore Chemical go up and down completely randomly.

Pair Corralation between China Development and Evermore Chemical

Assuming the 90 days trading horizon China Development is expected to generate 1.34 times less return on investment than Evermore Chemical. But when comparing it to its historical volatility, China Development Financial is 1.6 times less risky than Evermore Chemical. It trades about 0.05 of its potential returns per unit of risk. Evermore Chemical Industry is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,520  in Evermore Chemical Industry on September 28, 2024 and sell it today you would earn a total of  630.00  from holding Evermore Chemical Industry or generate 41.45% return on investment over 90 days.

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

China Development Financial  vs.  Evermore Chemical Industry

China Development

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Development may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Evermore Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evermore Chemical Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China Development and Evermore Chemical

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

The idea behind China Development Financial and Evermore Chemical Industry 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.