Can any of the company-specific risk be diversified away by investing in both China Xuefeng and Envirotech Vehicles 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 Xuefeng and Envirotech Vehicles into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Xuefeng Environmental and Envirotech Vehicles, you can compare the effects of market volatilities on China Xuefeng and Envirotech Vehicles 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 Xuefeng with a short position of Envirotech Vehicles. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Xuefeng and Envirotech Vehicles.
Diversification Opportunities for China Xuefeng and Envirotech Vehicles
The 3 months correlation between China and Envirotech is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Xuefeng Environmental and Envirotech Vehicles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Envirotech Vehicles and China Xuefeng 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 Xuefeng Environmental are associated (or correlated) with Envirotech Vehicles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Envirotech Vehicles has no effect on the direction of China Xuefeng i.e., China Xuefeng and Envirotech Vehicles go up and down completely randomly.
Pair Corralation between China Xuefeng and Envirotech Vehicles
Given the investment horizon of 90 days China Xuefeng Environmental is expected to generate 3.77 times more return on investment than Envirotech Vehicles. However, China Xuefeng is 3.77 times more volatile than Envirotech Vehicles. It trades about 0.1 of its potential returns per unit of risk. Envirotech Vehicles is currently generating about 0.01 per unit of risk. If you would invest 6.00 in China Xuefeng Environmental on March 6, 2024 and sell it today you would lose (3.00) from holding China Xuefeng Environmental or give up 50.0% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in China Xuefeng Environmental are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, China Xuefeng disclosed solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Envirotech Vehicles has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in July 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.