Correlation Between Eastern Communications and Chengdu B

Can any of the company-specific risk be diversified away by investing in both Eastern Communications and Chengdu B 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 Eastern Communications and Chengdu B into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastern Communications Co and Chengdu B ray Media, you can compare the effects of market volatilities on Eastern Communications and Chengdu B 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 Eastern Communications with a short position of Chengdu B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Communications and Chengdu B.

Diversification Opportunities for Eastern Communications and Chengdu B

0.56

Correlation Coefficient

Eastern Communications  Chengdu B

Very weak diversification

The 3 months correlation between Eastern and Chengdu is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Communications Co and Chengdu B ray Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu B ray and Eastern Communications 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 Eastern Communications Co are associated (or correlated) with Chengdu B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu B ray has no effect on the direction of Eastern Communications i.e., Eastern Communications and Chengdu B go up and down completely randomly.

Pair Corralation between Eastern Communications and Chengdu B

Assuming the 90 days trading horizon Eastern Communications Co is expected to under-perform the Chengdu B. But the stock apears to be less risky and, when comparing its historical volatility, Eastern Communications Co is 3.43 times less risky than Chengdu B. The stock trades about -0.19 of its potential returns per unit of risk. The Chengdu B ray Media is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  504.00  in Chengdu B ray Media on October 4, 2024 and sell it today you would lose (30.00) from holding Chengdu B ray Media or give up 5.95% of portfolio value over 90 days.

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

Eastern Communications Co  vs.  Chengdu B ray Media

Eastern Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Communications Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eastern Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chengdu B ray

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chengdu B ray Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Chengdu B is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eastern Communications and Chengdu B

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

The idea behind Eastern Communications Co and Chengdu B ray Media 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.