Correlation Between China Eastern and RWE Aktiengesellscha

Can any of the company-specific risk be diversified away by investing in both China Eastern and RWE Aktiengesellscha 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 RWE Aktiengesellscha 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 RWE Aktiengesellschaft, you can compare the effects of market volatilities on China Eastern and RWE Aktiengesellscha 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 RWE Aktiengesellscha. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Eastern and RWE Aktiengesellscha.

Diversification Opportunities for China Eastern and RWE Aktiengesellscha

0.03

Correlation Coefficient

China Eastern  RWE Aktiengesellscha

Significant diversification

The 3 months correlation between China and RWE is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Eastern Airlines and RWE Aktiengesellschaft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE Aktiengesellschaft 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 RWE Aktiengesellscha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE Aktiengesellschaft has no effect on the direction of China Eastern i.e., China Eastern and RWE Aktiengesellscha go up and down completely randomly.

Pair Corralation between China Eastern and RWE Aktiengesellscha

Assuming the 90 days trading horizon China Eastern Airlines is expected to under-perform the RWE Aktiengesellscha. In addition to that, China Eastern is 1.14 times more volatile than RWE Aktiengesellschaft. It trades about -0.01 of its total potential returns per unit of risk. RWE Aktiengesellschaft is currently generating about 0.14 per unit of volatility. If you would invest  2,680  in RWE Aktiengesellschaft on December 19, 2024 and sell it today you would earn a total of  520.00  from holding RWE Aktiengesellschaft or generate 19.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

China Eastern Airlines  vs.  RWE Aktiengesellschaft

China Eastern Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Eastern Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Eastern is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

RWE Aktiengesellschaft

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RWE Aktiengesellschaft are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, RWE Aktiengesellscha reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Eastern and RWE Aktiengesellscha

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

The idea behind China Eastern Airlines and RWE Aktiengesellschaft 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.