Correlation Between Hefei Metalforming and Elite Color

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

By analyzing existing cross correlation between Hefei Metalforming Mach and Elite Color Environmental, you can compare the effects of market volatilities on Hefei Metalforming and Elite Color 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 Hefei Metalforming with a short position of Elite Color. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hefei Metalforming and Elite Color.

Diversification Opportunities for Hefei Metalforming and Elite Color

0.93

Correlation Coefficient

Hefei Metalforming  Elite Color

Almost no diversification

The 3 months correlation between Hefei and Elite is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Hefei Metalforming Mach and Elite Color Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Color Environmental and Hefei Metalforming 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 Hefei Metalforming Mach are associated (or correlated) with Elite Color. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Color Environmental has no effect on the direction of Hefei Metalforming i.e., Hefei Metalforming and Elite Color go up and down completely randomly.

Pair Corralation between Hefei Metalforming and Elite Color

Assuming the 90 days trading horizon Hefei Metalforming Mach is expected to under-perform the Elite Color. But the stock apears to be less risky and, when comparing its historical volatility, Hefei Metalforming Mach is 1.11 times less risky than Elite Color. The stock trades about -0.26 of its potential returns per unit of risk. The Elite Color Environmental is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  684.00  in Elite Color Environmental on September 22, 2024 and sell it today you would lose (23.00) from holding Elite Color Environmental or give up 3.36% of portfolio value over 90 days.

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

Hefei Metalforming Mach  vs.  Elite Color Environmental

Hefei Metalforming Mach

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hefei Metalforming Mach are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hefei Metalforming sustained solid returns over the last few months and may actually be approaching a breakup point.

Elite Color Environmental

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Hefei Metalforming and Elite Color

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

The idea behind Hefei Metalforming Mach and Elite Color Environmental 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.