Correlation Between Investor and China Everbright

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

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

Diversification Opportunities for Investor and China Everbright

0.03

Correlation Coefficient

Investor  China Everbright

Significant diversification

The 3 months correlation between Investor and China is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB and China Everbright Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright and Investor 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 Investor AB 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 Investor i.e., Investor and China Everbright go up and down completely randomly.

Pair Corralation between Investor and China Everbright

Assuming the 90 days horizon Investor AB is expected to under-perform the China Everbright. But the pink sheet apears to be less risky and, when comparing its historical volatility, Investor AB is 1.03 times less risky than China Everbright. The pink sheet trades about -0.16 of its potential returns per unit of risk. The China Everbright Ltd is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  503.00  in China Everbright Ltd on February 5, 2024 and sell it today you would lose (29.00) from holding China Everbright Ltd or give up 5.77% of portfolio value over 90 days.

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

Investor AB  vs.  China Everbright Ltd

Investor AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Everbright

Risk-Adjusted Performance

0 of 100

Very Weak

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 strong forward indicators, China Everbright is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Investor and China Everbright

The main advantage of trading using opposite Investor and China Everbright positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investor 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 Investor AB 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.