Correlation Between East Africa and Fanhua

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

By analyzing existing cross correlation between East Africa Metals and Fanhua Inc, you can compare the effects of market volatilities on East Africa and Fanhua 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 East Africa with a short position of Fanhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Africa and Fanhua.

Diversification Opportunities for East Africa and Fanhua

0.02

Correlation Coefficient

East Africa  Fanhua

Significant diversification

The 3 months correlation between East and Fanhua is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and Fanhua Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fanhua Inc and East Africa 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 East Africa Metals are associated (or correlated) with Fanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fanhua Inc has no effect on the direction of East Africa i.e., East Africa and Fanhua go up and down completely randomly.

Pair Corralation between East Africa and Fanhua

Assuming the 90 days horizon East Africa Metals is expected to under-perform the Fanhua. But the pink sheet apears to be less risky and, when comparing its historical volatility, East Africa Metals is 1.66 times less risky than Fanhua. The pink sheet trades about -0.12 of its potential returns per unit of risk. The Fanhua Inc is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  180.00  in Fanhua Inc on September 30, 2024 and sell it today you would lose (66.00) from holding Fanhua Inc or give up 36.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

East Africa Metals  vs.  Fanhua Inc

East Africa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Africa Metals 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 primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Fanhua Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fanhua Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with East Africa and Fanhua

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

The idea behind East Africa Metals and Fanhua Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.