Correlation Between PayPal Holdings and China Everbright

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

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

Diversification Opportunities for PayPal Holdings and China Everbright

0.77

Correlation Coefficient

PayPal Holdings  China Everbright

Poor diversification

The 3 months correlation between PayPal and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and China Everbright Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright Bank and PayPal Holdings 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 PayPal Holdings 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 Bank has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and China Everbright go up and down completely randomly.

Pair Corralation between PayPal Holdings and China Everbright

Given the investment horizon of 90 days PayPal Holdings is expected to generate 1.19 times less return on investment than China Everbright. But when comparing it to its historical volatility, PayPal Holdings is 1.05 times less risky than China Everbright. It trades about 0.15 of its potential returns per unit of risk. China Everbright Bank is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  307.00  in China Everbright Bank on September 5, 2024 and sell it today you would earn a total of  62.00  from holding China Everbright Bank or generate 20.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.06%
Values	Daily Returns

PayPal Holdings  vs.  China Everbright Bank

PayPal Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PayPal Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, PayPal Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

China Everbright Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Everbright sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PayPal Holdings and China Everbright

The main advantage of trading using opposite PayPal Holdings and China Everbright positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PayPal Holdings 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 PayPal Holdings and China Everbright Bank 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..