Correlation Between EHealth and Fanhua

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

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

Diversification Opportunities for EHealth and Fanhua

0.92

Correlation Coefficient

EHealth  Fanhua

Almost no diversification

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

Pair Corralation between EHealth and Fanhua

Given the investment horizon of 90 days eHealth is expected to generate 0.89 times more return on investment than Fanhua. However, eHealth is 1.13 times less risky than Fanhua. It trades about -0.16 of its potential returns per unit of risk. Fanhua Inc is currently generating about -0.31 per unit of risk. If you would invest  550.00  in eHealth on February 7, 2024 and sell it today you would lose (73.00) from holding eHealth or give up 13.27% of portfolio value over 90 days.

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

eHealth  vs.  Fanhua Inc

eHealth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eHealth has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Fanhua Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fanhua Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with EHealth and Fanhua

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

The idea behind eHealth and Fanhua Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.