Correlation Between China Everbright and Guangdong Qunxing

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

Diversification Opportunities for China Everbright and Guangdong Qunxing

0.79

Correlation Coefficient

China Everbright  Guangdong Qunxing

Poor diversification

The 3 months correlation between China and Guangdong is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding China Everbright Bank and Guangdong Qunxing Toys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Qunxing Toys 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 Guangdong Qunxing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Qunxing Toys has no effect on the direction of China Everbright i.e., China Everbright and Guangdong Qunxing go up and down completely randomly.

Pair Corralation between China Everbright and Guangdong Qunxing

Assuming the 90 days trading horizon China Everbright Bank is expected to generate 0.32 times more return on investment than Guangdong Qunxing. However, China Everbright Bank is 3.08 times less risky than Guangdong Qunxing. It trades about 0.0 of its potential returns per unit of risk. Guangdong Qunxing Toys is currently generating about -0.08 per unit of risk. If you would invest  374.00  in China Everbright Bank on October 10, 2024 and sell it today you would lose (1.00) from holding China Everbright Bank or give up 0.27% of portfolio value over 90 days.

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

China Everbright Bank  vs.  Guangdong Qunxing Toys

China Everbright Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Everbright is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangdong Qunxing Toys

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Qunxing Toys are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Qunxing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Everbright and Guangdong Qunxing

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

The idea behind China Everbright Bank and Guangdong Qunxing Toys 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.