Correlation Between EVE Energy and Weihai Honglin

Can any of the company-specific risk be diversified away by investing in both EVE Energy and Weihai Honglin 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 EVE Energy and Weihai Honglin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EVE Energy and Weihai Honglin Electronic, you can compare the effects of market volatilities on EVE Energy and Weihai Honglin 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 EVE Energy with a short position of Weihai Honglin. Check out your portfolio center. Please also check ongoing floating volatility patterns of EVE Energy and Weihai Honglin.

Diversification Opportunities for EVE Energy and Weihai Honglin

0.66

Correlation Coefficient

EVE Energy  Weihai Honglin

Poor diversification

The 3 months correlation between EVE and Weihai is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding EVE Energy and Weihai Honglin Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weihai Honglin Electronic and EVE Energy 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 EVE Energy are associated (or correlated) with Weihai Honglin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weihai Honglin Electronic has no effect on the direction of EVE Energy i.e., EVE Energy and Weihai Honglin go up and down completely randomly.

Pair Corralation between EVE Energy and Weihai Honglin

Assuming the 90 days trading horizon EVE Energy is expected to under-perform the Weihai Honglin. But the stock apears to be less risky and, when comparing its historical volatility, EVE Energy is 1.07 times less risky than Weihai Honglin. The stock trades about -0.23 of its potential returns per unit of risk. The Weihai Honglin Electronic is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,394  in Weihai Honglin Electronic on October 7, 2024 and sell it today you would earn a total of  12.00  from holding Weihai Honglin Electronic or generate 0.86% return on investment over 90 days.

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

EVE Energy  vs.  Weihai Honglin Electronic

EVE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EVE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Weihai Honglin Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weihai Honglin Electronic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Weihai Honglin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with EVE Energy and Weihai Honglin

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

The idea behind EVE Energy and Weihai Honglin Electronic 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.