Correlation Between Wuhan Yangtze and Eastroc Beverage

Can any of the company-specific risk be diversified away by investing in both Wuhan Yangtze and Eastroc Beverage 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 Wuhan Yangtze and Eastroc Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wuhan Yangtze Communication and Eastroc Beverage Group, you can compare the effects of market volatilities on Wuhan Yangtze and Eastroc Beverage 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 Wuhan Yangtze with a short position of Eastroc Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuhan Yangtze and Eastroc Beverage.

Diversification Opportunities for Wuhan Yangtze and Eastroc Beverage

-0.1

Correlation Coefficient

Wuhan Yangtze  Eastroc Beverage

Good diversification

The 3 months correlation between Wuhan and Eastroc is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Yangtze Communication and Eastroc Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastroc Beverage and Wuhan Yangtze 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 Wuhan Yangtze Communication are associated (or correlated) with Eastroc Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastroc Beverage has no effect on the direction of Wuhan Yangtze i.e., Wuhan Yangtze and Eastroc Beverage go up and down completely randomly.

Pair Corralation between Wuhan Yangtze and Eastroc Beverage

Assuming the 90 days trading horizon Wuhan Yangtze Communication is expected to under-perform the Eastroc Beverage. But the stock apears to be less risky and, when comparing its historical volatility, Wuhan Yangtze Communication is 1.04 times less risky than Eastroc Beverage. The stock trades about -0.1 of its potential returns per unit of risk. The Eastroc Beverage Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  24,199  in Eastroc Beverage Group on October 24, 2024 and sell it today you would earn a total of  791.00  from holding Eastroc Beverage Group or generate 3.27% return on investment over 90 days.

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

Wuhan Yangtze Communication  vs.  Eastroc Beverage Group

Wuhan Yangtze Commun

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Yangtze Communication are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Yangtze sustained solid returns over the last few months and may actually be approaching a breakup point.

Eastroc Beverage

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastroc Beverage Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastroc Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wuhan Yangtze and Eastroc Beverage

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

The idea behind Wuhan Yangtze Communication and Eastroc Beverage Group 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.