Correlation Between Penghua Shenzhen and Wankai New

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

By analyzing existing cross correlation between Penghua Shenzhen Energy and Wankai New Materials, you can compare the effects of market volatilities on Penghua Shenzhen and Wankai New 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 Penghua Shenzhen with a short position of Wankai New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penghua Shenzhen and Wankai New.

Diversification Opportunities for Penghua Shenzhen and Wankai New

-0.6

Correlation Coefficient

Penghua Shenzhen  Wankai New

Excellent diversification

The 3 months correlation between Penghua and Wankai is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Penghua Shenzhen Energy and Wankai New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wankai New Materials and Penghua Shenzhen 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 Penghua Shenzhen Energy are associated (or correlated) with Wankai New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wankai New Materials has no effect on the direction of Penghua Shenzhen i.e., Penghua Shenzhen and Wankai New go up and down completely randomly.

Pair Corralation between Penghua Shenzhen and Wankai New

Assuming the 90 days trading horizon Penghua Shenzhen Energy is expected to generate 0.39 times more return on investment than Wankai New. However, Penghua Shenzhen Energy is 2.58 times less risky than Wankai New. It trades about -0.06 of its potential returns per unit of risk. Wankai New Materials is currently generating about -0.24 per unit of risk. If you would invest  619.00  in Penghua Shenzhen Energy on October 20, 2024 and sell it today you would lose (5.00) from holding Penghua Shenzhen Energy or give up 0.81% of portfolio value over 90 days.

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

Penghua Shenzhen Energy  vs.  Wankai New Materials

Penghua Shenzhen Energy

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Penghua Shenzhen Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Penghua Shenzhen is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wankai New Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wankai New Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Penghua Shenzhen and Wankai New

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

The idea behind Penghua Shenzhen Energy and Wankai New Materials 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.