Correlation Between China Everbright and City Development

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

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

Diversification Opportunities for China Everbright and City Development

-0.09

Correlation Coefficient

China Everbright  City Development

Good diversification

The 3 months correlation between China and City is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding China Everbright Bank and City Development Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Development Env and China Everbright 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 Everbright Bank are associated (or correlated) with City Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Development Env has no effect on the direction of China Everbright i.e., China Everbright and City Development go up and down completely randomly.

Pair Corralation between China Everbright and City Development

Assuming the 90 days trading horizon China Everbright Bank is expected to generate 0.74 times more return on investment than City Development. However, China Everbright Bank is 1.35 times less risky than City Development. It trades about 0.13 of its potential returns per unit of risk. City Development Environment is currently generating about 0.02 per unit of risk. If you would invest  342.00  in China Everbright Bank on October 27, 2024 and sell it today you would earn a total of  45.00  from holding China Everbright Bank or generate 13.16% return on investment over 90 days.

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

China Everbright Bank  vs.  City Development Environment

China Everbright Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Everbright sustained solid returns over the last few months and may actually be approaching a breakup point.

City Development Env

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in City Development Environment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, City Development is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Everbright and City Development

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

The idea behind China Everbright Bank and City Development Environment 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.