Correlation Between Central Plains and Sinocat Environmental

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

By analyzing existing cross correlation between Central Plains Environment and Sinocat Environmental Technology, you can compare the effects of market volatilities on Central Plains and Sinocat Environmental 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 Central Plains with a short position of Sinocat Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Plains and Sinocat Environmental.

Diversification Opportunities for Central Plains and Sinocat Environmental

0.66

Correlation Coefficient

Central Plains  Sinocat Environmental

Poor diversification

The 3 months correlation between Central and Sinocat is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Central Plains Environment and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental and Central Plains 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 Central Plains Environment are associated (or correlated) with Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Central Plains i.e., Central Plains and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Central Plains and Sinocat Environmental

Assuming the 90 days trading horizon Central Plains is expected to generate 2.72 times less return on investment than Sinocat Environmental. But when comparing it to its historical volatility, Central Plains Environment is 1.81 times less risky than Sinocat Environmental. It trades about 0.15 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,201  in Sinocat Environmental Technology on September 22, 2024 and sell it today you would earn a total of  913.00  from holding Sinocat Environmental Technology or generate 76.02% return on investment over 90 days.

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

Central Plains Environment  vs.  Sinocat Environmental Technolo

Central Plains Envir

Risk-Adjusted Performance

12 of 100

Good

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

Sinocat Environmental

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sinocat Environmental Technology are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinocat Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Plains and Sinocat Environmental

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

The idea behind Central Plains Environment and Sinocat Environmental Technology 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.