Correlation Between China Everbright and Stericycle

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

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

Diversification Opportunities for China Everbright and Stericycle

-0.47

Correlation Coefficient

China Everbright  Stericycle

Very good diversification

The 3 months correlation between China and Stericycle is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding China Everbright International and Stericycle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stericycle and China Everbright 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 Everbright International are associated (or correlated) with Stericycle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stericycle has no effect on the direction of China Everbright i.e., China Everbright and Stericycle go up and down completely randomly.

Pair Corralation between China Everbright and Stericycle

Assuming the 90 days horizon China Everbright International is expected to generate 3.16 times more return on investment than Stericycle. However, China Everbright is 3.16 times more volatile than Stericycle. It trades about 0.11 of its potential returns per unit of risk. Stericycle is currently generating about -0.09 per unit of risk. If you would invest  304.00  in China Everbright International on February 23, 2024 and sell it today you would earn a total of  104.00  from holding China Everbright International or generate 34.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Everbright International  vs.  Stericycle

China Everbright Int

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, China Everbright showed solid returns over the last few months and may actually be approaching a breakup point.

Stericycle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stericycle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with China Everbright and Stericycle

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

The idea behind China Everbright International and Stericycle 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.