Correlation Between ESUN Financial and Wei Chuan

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Can any of the company-specific risk be diversified away by investing in both ESUN Financial and Wei Chuan 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 ESUN Financial and Wei Chuan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESUN Financial Holding and Wei Chuan Foods, you can compare the effects of market volatilities on ESUN Financial and Wei Chuan 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 ESUN Financial with a short position of Wei Chuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESUN Financial and Wei Chuan.

Diversification Opportunities for ESUN Financial and Wei Chuan

ESUNWeiDiversified AwayESUNWeiDiversified Away100%
0.34
  Correlation Coefficient

Weak diversification

The 3 months correlation between ESUN and Wei is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding ESUN Financial Holding and Wei Chuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wei Chuan Foods and ESUN Financial 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 ESUN Financial Holding are associated (or correlated) with Wei Chuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wei Chuan Foods has no effect on the direction of ESUN Financial i.e., ESUN Financial and Wei Chuan go up and down completely randomly.

Pair Corralation between ESUN Financial and Wei Chuan

Assuming the 90 days trading horizon ESUN Financial Holding is expected to under-perform the Wei Chuan. In addition to that, ESUN Financial is 1.78 times more volatile than Wei Chuan Foods. It trades about -0.09 of its total potential returns per unit of risk. Wei Chuan Foods is currently generating about -0.05 per unit of volatility. If you would invest  1,805  in Wei Chuan Foods on September 24, 2024 and sell it today you would lose (30.00) from holding Wei Chuan Foods or give up 1.66% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

ESUN Financial Holding  vs.  Wei Chuan Foods

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -4-3-2-10123
JavaScript chart by amCharts 3.21.152884 1201
       Timeline  
ESUN Financial Holding 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days ESUN Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ESUN Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec2626.52727.52828.529
Wei Chuan Foods 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Wei Chuan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wei Chuan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec17.717.817.91818.118.218.318.418.5

ESUN Financial and Wei Chuan Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.57-1.17-0.77-0.37-0.02630.280.681.081.48 0.20.40.60.81.01.21.4
JavaScript chart by amCharts 3.21.152884 1201
       Returns  

Pair Trading with ESUN Financial and Wei Chuan

The main advantage of trading using opposite ESUN Financial and Wei Chuan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESUN Financial position performs unexpectedly, Wei Chuan 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 Wei Chuan will offset losses from the drop in Wei Chuan's long position.
The idea behind ESUN Financial Holding and Wei Chuan Foods 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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