Correlation Between China Everbright and Eyebright Medical

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

Diversification Opportunities for China Everbright and Eyebright Medical

-0.36

Correlation Coefficient

China Everbright  Eyebright Medical

Very good diversification

The 3 months correlation between China and Eyebright is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding China Everbright Bank and Eyebright Medical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eyebright Medical 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 Eyebright Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eyebright Medical has no effect on the direction of China Everbright i.e., China Everbright and Eyebright Medical go up and down completely randomly.

Pair Corralation between China Everbright and Eyebright Medical

Assuming the 90 days trading horizon China Everbright Bank is expected to generate 0.33 times more return on investment than Eyebright Medical. However, China Everbright Bank is 3.01 times less risky than Eyebright Medical. It trades about 0.07 of its potential returns per unit of risk. Eyebright Medical Technology is currently generating about -0.02 per unit of risk. If you would invest  298.00  in China Everbright Bank on October 9, 2024 and sell it today you would earn a total of  75.00  from holding China Everbright Bank or generate 25.17% 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.  Eyebright Medical Technology

China Everbright Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 7 (%) 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.

Eyebright Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eyebright Medical Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eyebright Medical 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 Eyebright Medical

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

The idea behind China Everbright Bank and Eyebright Medical Technology 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.