Correlation Between Industrial and China Everbright

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

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

Diversification Opportunities for Industrial and China Everbright

0.83

Correlation Coefficient

Industrial  China Everbright

Very poor diversification

The 3 months correlation between Industrial and China is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and China Everbright Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright Bank and Industrial 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 Industrial and Commercial are associated (or correlated) with China Everbright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Everbright Bank has no effect on the direction of Industrial i.e., Industrial and China Everbright go up and down completely randomly.

Pair Corralation between Industrial and China Everbright

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.83 times more return on investment than China Everbright. However, Industrial and Commercial is 1.21 times less risky than China Everbright. It trades about 0.11 of its potential returns per unit of risk. China Everbright Bank is currently generating about 0.09 per unit of risk. If you would invest  614.00  in Industrial and Commercial on October 22, 2024 and sell it today you would earn a total of  47.00  from holding Industrial and Commercial or generate 7.65% return on investment over 90 days.

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

Industrial and Commercial  vs.  China Everbright Bank

Industrial and Commercial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Everbright Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Everbright may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Industrial and China Everbright

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

The idea behind Industrial and Commercial and China Everbright Bank 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 Transaction History module to view history of all your transactions and understand their impact on performance.