Correlation Between Everdisplay Optronics and Caihong Display

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

By analyzing existing cross correlation between Everdisplay Optronics Shanghai and Caihong Display Devices, you can compare the effects of market volatilities on Everdisplay Optronics and Caihong Display 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 Everdisplay Optronics with a short position of Caihong Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Everdisplay Optronics and Caihong Display.

Diversification Opportunities for Everdisplay Optronics and Caihong Display

0.92

Correlation Coefficient

Everdisplay Optronics  Caihong Display

Almost no diversification

The 3 months correlation between Everdisplay and Caihong is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Everdisplay Optronics Shanghai and Caihong Display Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caihong Display Devices and Everdisplay Optronics 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 Everdisplay Optronics Shanghai are associated (or correlated) with Caihong Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caihong Display Devices has no effect on the direction of Everdisplay Optronics i.e., Everdisplay Optronics and Caihong Display go up and down completely randomly.

Pair Corralation between Everdisplay Optronics and Caihong Display

Assuming the 90 days trading horizon Everdisplay Optronics Shanghai is expected to generate 0.99 times more return on investment than Caihong Display. However, Everdisplay Optronics Shanghai is 1.01 times less risky than Caihong Display. It trades about 0.15 of its potential returns per unit of risk. Caihong Display Devices is currently generating about 0.12 per unit of risk. If you would invest  204.00  in Everdisplay Optronics Shanghai on September 11, 2024 and sell it today you would earn a total of  54.00  from holding Everdisplay Optronics Shanghai or generate 26.47% return on investment over 90 days.

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

Everdisplay Optronics Shanghai  vs.  Caihong Display Devices

Everdisplay Optronics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Everdisplay Optronics Shanghai are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Everdisplay Optronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Caihong Display Devices

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caihong Display Devices are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Caihong Display sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Everdisplay Optronics and Caihong Display

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

The idea behind Everdisplay Optronics Shanghai and Caihong Display Devices 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.