Correlation Between Everdisplay Optronics and China Life

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

By analyzing existing cross correlation between Everdisplay Optronics Shanghai and China Life Insurance, you can compare the effects of market volatilities on Everdisplay Optronics and China Life 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 Everdisplay Optronics with a short position of China Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Everdisplay Optronics and China Life.

Diversification Opportunities for Everdisplay Optronics and China Life

0.65

Correlation Coefficient

Everdisplay Optronics  China Life

Poor diversification

The 3 months correlation between Everdisplay and China is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Everdisplay Optronics Shanghai and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and Everdisplay Optronics 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 Everdisplay Optronics Shanghai are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Everdisplay Optronics i.e., Everdisplay Optronics and China Life go up and down completely randomly.

Pair Corralation between Everdisplay Optronics and China Life

Assuming the 90 days trading horizon Everdisplay Optronics Shanghai is expected to under-perform the China Life. But the stock apears to be less risky and, when comparing its historical volatility, Everdisplay Optronics Shanghai is 1.16 times less risky than China Life. The stock trades about -0.46 of its potential returns per unit of risk. The China Life Insurance is currently generating about -0.3 of returns per unit of risk over similar time horizon. If you would invest  4,407  in China Life Insurance on October 9, 2024 and sell it today you would lose (489.00) from holding China Life Insurance or give up 11.1% of portfolio value over 90 days.

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

Everdisplay Optronics Shanghai  vs.  China Life Insurance

Everdisplay Optronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Everdisplay Optronics Shanghai has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Everdisplay Optronics and China Life

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

The idea behind Everdisplay Optronics Shanghai and China Life Insurance 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.