Correlation Between BH and PJ Electronics

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

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

Diversification Opportunities for BH and PJ Electronics

-0.26

Correlation Coefficient

BH  PJ Electronics

Very good diversification

The 3 months correlation between BH and 006140 is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding BH Co and PJ Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PJ Electronics and BH 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 BH Co are associated (or correlated) with PJ Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PJ Electronics has no effect on the direction of BH i.e., BH and PJ Electronics go up and down completely randomly.

Pair Corralation between BH and PJ Electronics

Assuming the 90 days trading horizon BH Co is expected to under-perform the PJ Electronics. But the stock apears to be less risky and, when comparing its historical volatility, BH Co is 1.24 times less risky than PJ Electronics. The stock trades about -0.01 of its potential returns per unit of risk. The PJ Electronics Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  530,000  in PJ Electronics Co on December 1, 2024 and sell it today you would earn a total of  67,000  from holding PJ Electronics Co or generate 12.64% return on investment over 90 days.

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

BH Co  vs.  PJ Electronics Co

BH Co

Risk-Adjusted Performance

Weak

Over the last 90 days BH Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BH is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PJ Electronics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PJ Electronics Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PJ Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BH and PJ Electronics

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

The idea behind BH Co and PJ Electronics Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..