Correlation Between China Everbright and Xiamen Amoytop

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

Diversification Opportunities for China Everbright and Xiamen Amoytop

-0.64

Correlation Coefficient

China Everbright  Xiamen Amoytop

Excellent diversification

The 3 months correlation between China and Xiamen is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Everbright Bank and Xiamen Amoytop Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Amoytop Biotech 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 Xiamen Amoytop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Amoytop Biotech has no effect on the direction of China Everbright i.e., China Everbright and Xiamen Amoytop go up and down completely randomly.

Pair Corralation between China Everbright and Xiamen Amoytop

Assuming the 90 days trading horizon China Everbright is expected to generate 2.48 times less return on investment than Xiamen Amoytop. But when comparing it to its historical volatility, China Everbright Bank is 2.28 times less risky than Xiamen Amoytop. It trades about 0.05 of its potential returns per unit of risk. Xiamen Amoytop Biotech is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,420  in Xiamen Amoytop Biotech on October 24, 2024 and sell it today you would earn a total of  3,557  from holding Xiamen Amoytop Biotech or generate 80.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

China Everbright Bank  vs.  Xiamen Amoytop Biotech

China Everbright Bank

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 5 (%) 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.

Xiamen Amoytop Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Everbright Bank and Xiamen Amoytop Biotech 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.