Correlation Between China Eastern and CHINA EDUCATION

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

By analyzing existing cross correlation between China Eastern Airlines and CHINA EDUCATION GROUP, you can compare the effects of market volatilities on China Eastern and CHINA EDUCATION 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 Eastern with a short position of CHINA EDUCATION. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Eastern and CHINA EDUCATION.

Diversification Opportunities for China Eastern and CHINA EDUCATION

-0.72

Correlation Coefficient

China Eastern  CHINA EDUCATION

Pay attention - limited upside

The 3 months correlation between China and CHINA is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding China Eastern Airlines and CHINA EDUCATION GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA EDUCATION GROUP and China Eastern 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 Eastern Airlines are associated (or correlated) with CHINA EDUCATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA EDUCATION GROUP has no effect on the direction of China Eastern i.e., China Eastern and CHINA EDUCATION go up and down completely randomly.

Pair Corralation between China Eastern and CHINA EDUCATION

Assuming the 90 days trading horizon China Eastern is expected to generate 3.43 times less return on investment than CHINA EDUCATION. But when comparing it to its historical volatility, China Eastern Airlines is 1.14 times less risky than CHINA EDUCATION. It trades about 0.01 of its potential returns per unit of risk. CHINA EDUCATION GROUP is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  37.00  in CHINA EDUCATION GROUP on October 11, 2024 and sell it today you would earn a total of  1.00  from holding CHINA EDUCATION GROUP or generate 2.7% return on investment over 90 days.

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

China Eastern Airlines  vs.  CHINA EDUCATION GROUP

China Eastern Airlines

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Eastern reported solid returns over the last few months and may actually be approaching a breakup point.

CHINA EDUCATION GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Eastern and CHINA EDUCATION

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

The idea behind China Eastern Airlines and CHINA EDUCATION GROUP 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.