Correlation Between China Eastern and Qingdao Choho

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

By analyzing existing cross correlation between China Eastern Airlines and Qingdao Choho Industrial, you can compare the effects of market volatilities on China Eastern and Qingdao Choho 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 Eastern with a short position of Qingdao Choho. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Eastern and Qingdao Choho.

Diversification Opportunities for China Eastern and Qingdao Choho

0.59

Correlation Coefficient

China Eastern  Qingdao Choho

Very weak diversification

The 3 months correlation between China and Qingdao is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding China Eastern Airlines and Qingdao Choho Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingdao Choho Industrial and China Eastern 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 Eastern Airlines are associated (or correlated) with Qingdao Choho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingdao Choho Industrial has no effect on the direction of China Eastern i.e., China Eastern and Qingdao Choho go up and down completely randomly.

Pair Corralation between China Eastern and Qingdao Choho

Assuming the 90 days trading horizon China Eastern Airlines is expected to under-perform the Qingdao Choho. But the stock apears to be less risky and, when comparing its historical volatility, China Eastern Airlines is 1.69 times less risky than Qingdao Choho. The stock trades about -0.04 of its potential returns per unit of risk. The Qingdao Choho Industrial is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,684  in Qingdao Choho Industrial on October 25, 2024 and sell it today you would lose (1,514) from holding Qingdao Choho Industrial or give up 32.32% of portfolio value over 90 days.

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

China Eastern Airlines  vs.  Qingdao Choho Industrial

China Eastern Airlines

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Eastern is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Qingdao Choho Industrial

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with China Eastern and Qingdao Choho

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

The idea behind China Eastern Airlines and Qingdao Choho Industrial 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.