Correlation Between Eisai Co and China Medical

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

By analyzing existing cross correlation between Eisai Co and China Medical System, you can compare the effects of market volatilities on Eisai Co and China Medical 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 Eisai Co with a short position of China Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eisai Co and China Medical.

Diversification Opportunities for Eisai Co and China Medical

0.13

Correlation Coefficient

Eisai Co  China Medical

Average diversification

The 3 months correlation between Eisai and China is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Eisai Co and China Medical System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medical System and Eisai Co 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 Eisai Co are associated (or correlated) with China Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medical System has no effect on the direction of Eisai Co i.e., Eisai Co and China Medical go up and down completely randomly.

Pair Corralation between Eisai Co and China Medical

Assuming the 90 days horizon Eisai Co is expected to under-perform the China Medical. In addition to that, Eisai Co is 1.59 times more volatile than China Medical System. It trades about -0.08 of its total potential returns per unit of risk. China Medical System is currently generating about -0.1 per unit of volatility. If you would invest  98.00  in China Medical System on October 22, 2024 and sell it today you would lose (12.00) from holding China Medical System or give up 12.24% of portfolio value over 90 days.

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

Eisai Co  vs.  China Medical System

Eisai Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eisai Co 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 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.

China Medical System

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Medical System has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Eisai Co and China Medical

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

The idea behind Eisai Co and China Medical System 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..