Correlation Between China World and Elite Color

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

Diversification Opportunities for China World and Elite Color

-0.18

Correlation Coefficient

China World  Elite Color

Good diversification

The 3 months correlation between China and Elite is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and Elite Color Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Color Environmental 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 Elite Color. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Color Environmental has no effect on the direction of China World i.e., China World and Elite Color go up and down completely randomly.

Pair Corralation between China World and Elite Color

Assuming the 90 days trading horizon China World is expected to generate 1.79 times less return on investment than Elite Color. But when comparing it to its historical volatility, China World Trade is 1.35 times less risky than Elite Color. It trades about 0.05 of its potential returns per unit of risk. Elite Color Environmental is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  520.00  in Elite Color Environmental on October 20, 2024 and sell it today you would earn a total of  97.00  from holding Elite Color Environmental or generate 18.65% 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.  Elite Color Environmental

China World Trade

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China World Trade are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Elite Color Environmental

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Color Environmental are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elite Color may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China World and Elite Color

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

The idea behind China World Trade and Elite Color Environmental 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.