Correlation Between East Money and ChengDu Hi

Can any of the company-specific risk be diversified away by investing in both East Money and ChengDu Hi 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 East Money and ChengDu Hi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between East Money Information and ChengDu Hi Tech Development, you can compare the effects of market volatilities on East Money and ChengDu Hi 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 East Money with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Money and ChengDu Hi.

Diversification Opportunities for East Money and ChengDu Hi

0.38

Correlation Coefficient

East Money  ChengDu Hi

Weak diversification

The 3 months correlation between East and ChengDu is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding East Money Information and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and East Money 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 East Money Information are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of East Money i.e., East Money and ChengDu Hi go up and down completely randomly.

Pair Corralation between East Money and ChengDu Hi

Assuming the 90 days trading horizon East Money Information is expected to under-perform the ChengDu Hi. But the stock apears to be less risky and, when comparing its historical volatility, East Money Information is 1.37 times less risky than ChengDu Hi. The stock trades about -0.34 of its potential returns per unit of risk. The ChengDu Hi Tech Development is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  5,949  in ChengDu Hi Tech Development on October 8, 2024 and sell it today you would lose (807.00) from holding ChengDu Hi Tech Development or give up 13.57% of portfolio value over 90 days.

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

East Money Information  vs.  ChengDu Hi Tech Development

East Money Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with East Money and ChengDu Hi

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

The idea behind East Money Information and ChengDu Hi Tech Development 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.