Correlation Between China Man and Everlight Chemical

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

By analyzing existing cross correlation between China Man Made Fiber and Everlight Chemical Industrial, you can compare the effects of market volatilities on China Man and Everlight Chemical 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 Man with a short position of Everlight Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Man and Everlight Chemical.

Diversification Opportunities for China Man and Everlight Chemical

0.34

Correlation Coefficient

China Man  Everlight Chemical

Weak diversification

The 3 months correlation between China and Everlight is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding China Man Made Fiber and Everlight Chemical Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everlight Chemical and China Man 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 Man Made Fiber are associated (or correlated) with Everlight Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everlight Chemical has no effect on the direction of China Man i.e., China Man and Everlight Chemical go up and down completely randomly.

Pair Corralation between China Man and Everlight Chemical

Assuming the 90 days trading horizon China Man Made Fiber is expected to generate 0.55 times more return on investment than Everlight Chemical. However, China Man Made Fiber is 1.82 times less risky than Everlight Chemical. It trades about 0.0 of its potential returns per unit of risk. Everlight Chemical Industrial is currently generating about -0.02 per unit of risk. If you would invest  815.00  in China Man Made Fiber on September 10, 2024 and sell it today you would lose (2.00) from holding China Man Made Fiber or give up 0.25% of portfolio value over 90 days.

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

China Man Made Fiber  vs.  Everlight Chemical Industrial

China Man Made

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days China Man Made Fiber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Man is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Everlight Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Everlight Chemical Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Everlight Chemical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Man and Everlight Chemical

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

The idea behind China Man Made Fiber and Everlight Chemical Industrial 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.