Correlation Between Flow Capital and China Everbright

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

By analyzing existing cross correlation between Flow Capital Corp and China Everbright Ltd, you can compare the effects of market volatilities on Flow Capital and China Everbright 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 Flow Capital with a short position of China Everbright. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flow Capital and China Everbright.

Diversification Opportunities for Flow Capital and China Everbright

-0.43

Correlation Coefficient

Flow Capital  China Everbright

Very good diversification

The 3 months correlation between Flow and China is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Flow Capital Corp and China Everbright Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright and Flow Capital 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 Flow Capital Corp are associated (or correlated) with China Everbright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Everbright has no effect on the direction of Flow Capital i.e., Flow Capital and China Everbright go up and down completely randomly.

Pair Corralation between Flow Capital and China Everbright

Assuming the 90 days horizon Flow Capital Corp is expected to under-perform the China Everbright. But the pink sheet apears to be less risky and, when comparing its historical volatility, Flow Capital Corp is 3.86 times less risky than China Everbright. The pink sheet trades about -0.13 of its potential returns per unit of risk. The China Everbright Ltd is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  418.00  in China Everbright Ltd on December 19, 2024 and sell it today you would earn a total of  226.00  from holding China Everbright Ltd or generate 54.07% return on investment over 90 days.

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

Flow Capital Corp  vs.  China Everbright Ltd

Flow Capital Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flow Capital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

China Everbright

Risk-Adjusted Performance

OK

Over the last 90 days China Everbright Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak forward indicators, China Everbright showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flow Capital and China Everbright

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

The idea behind Flow Capital Corp and China Everbright Ltd 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.