Correlation Between ESUN Financial and Golden Friends

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

Diversification Opportunities for ESUN Financial and Golden Friends

-0.62

Correlation Coefficient

ESUN Financial  Golden Friends

Excellent diversification

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

Pair Corralation between ESUN Financial and Golden Friends

Assuming the 90 days trading horizon ESUN Financial Holding is expected to under-perform the Golden Friends. In addition to that, ESUN Financial is 1.36 times more volatile than Golden Friends. It trades about -0.07 of its total potential returns per unit of risk. Golden Friends is currently generating about -0.04 per unit of volatility. If you would invest  10,250  in Golden Friends on October 9, 2024 and sell it today you would lose (50.00) from holding Golden Friends or give up 0.49% of portfolio value over 90 days.

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

ESUN Financial Holding  vs.  Golden Friends

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.

Golden Friends

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Friends are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Golden Friends 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 ESUN Financial and Golden Friends

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

The idea behind ESUN Financial Holding and Golden Friends 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.