Correlation Between ESUN Financial and China Development

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

Diversification Opportunities for ESUN Financial and China Development

-0.27

Correlation Coefficient

ESUN Financial  China Development

Very good diversification

The 3 months correlation between ESUN and China is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding ESUN Financial Holding and China Development Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Development 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 China Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Development has no effect on the direction of ESUN Financial i.e., ESUN Financial and China Development go up and down completely randomly.

Pair Corralation between ESUN Financial and China Development

Assuming the 90 days trading horizon ESUN Financial is expected to generate 2.6 times less return on investment than China Development. But when comparing it to its historical volatility, ESUN Financial Holding is 1.33 times less risky than China Development. It trades about 0.03 of its potential returns per unit of risk. China Development Financial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,280  in China Development Financial on September 17, 2024 and sell it today you would earn a total of  530.00  from holding China Development Financial or generate 41.41% return on investment over 90 days.

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

ESUN Financial Holding  vs.  China Development Financial

ESUN Financial Holding

Risk-Adjusted Performance

0 of 100

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.

China Development

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 12 (%) 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.

Pair Trading with ESUN Financial and China Development

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

The idea behind ESUN Financial Holding and China Development Financial 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.