Correlation Between China Development and Etron Technology

Can any of the company-specific risk be diversified away by investing in both China Development and Etron Technology 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 Etron Technology 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 Etron Technology, you can compare the effects of market volatilities on China Development and Etron Technology 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 Etron Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Etron Technology.

Diversification Opportunities for China Development and Etron Technology

-0.62

Correlation Coefficient

China Development  Etron Technology

Excellent diversification

The 3 months correlation between China and Etron is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Etron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etron Technology 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 Etron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etron Technology has no effect on the direction of China Development i.e., China Development and Etron Technology go up and down completely randomly.

Pair Corralation between China Development and Etron Technology

Assuming the 90 days trading horizon China Development is expected to generate 5.87 times less return on investment than Etron Technology. But when comparing it to its historical volatility, China Development Financial is 2.16 times less risky than Etron Technology. It trades about 0.08 of its potential returns per unit of risk. Etron Technology is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,260  in Etron Technology on September 29, 2024 and sell it today you would earn a total of  415.00  from holding Etron Technology or generate 12.73% 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.  Etron Technology

China Development

Risk-Adjusted Performance

6 of 100

Modest

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.

Etron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Etron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Etron Technology 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 China Development and Etron Technology

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

The idea behind China Development Financial and Etron 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.