Correlation Between China World and Changzhou Evergreen

Can any of the company-specific risk be diversified away by investing in both China World and Changzhou Evergreen 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 China World and Changzhou Evergreen into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China World Trade and Changzhou Evergreen Technology, you can compare the effects of market volatilities on China World and Changzhou Evergreen 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 China World with a short position of Changzhou Evergreen. Check out your portfolio center. Please also check ongoing floating volatility patterns of China World and Changzhou Evergreen.

Diversification Opportunities for China World and Changzhou Evergreen

-0.36

Correlation Coefficient

China World  Changzhou Evergreen

Very good diversification

The 3 months correlation between China and Changzhou is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and Changzhou Evergreen Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changzhou Evergreen and China World 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 China World Trade are associated (or correlated) with Changzhou Evergreen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changzhou Evergreen has no effect on the direction of China World i.e., China World and Changzhou Evergreen go up and down completely randomly.

Pair Corralation between China World and Changzhou Evergreen

Assuming the 90 days trading horizon China World Trade is expected to under-perform the Changzhou Evergreen. But the stock apears to be less risky and, when comparing its historical volatility, China World Trade is 2.1 times less risky than Changzhou Evergreen. The stock trades about -0.07 of its potential returns per unit of risk. The Changzhou Evergreen Technology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,727  in Changzhou Evergreen Technology on December 26, 2024 and sell it today you would earn a total of  110.00  from holding Changzhou Evergreen Technology or generate 6.37% return on investment over 90 days.

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

China World Trade  vs.  Changzhou Evergreen Technology

China World Trade

Risk-Adjusted Performance

Very Weak

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

Changzhou Evergreen

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Changzhou Evergreen Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changzhou Evergreen may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China World and Changzhou Evergreen

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

The idea behind China World Trade and Changzhou Evergreen Technology 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..