Correlation Between Penghua Shenzhen and Hangzhou Huawang

Can any of the company-specific risk be diversified away by investing in both Penghua Shenzhen and Hangzhou Huawang 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 Hangzhou Huawang 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 Hangzhou Huawang New, you can compare the effects of market volatilities on Penghua Shenzhen and Hangzhou Huawang 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 Hangzhou Huawang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penghua Shenzhen and Hangzhou Huawang.

Diversification Opportunities for Penghua Shenzhen and Hangzhou Huawang

0.23

Correlation Coefficient

Penghua Shenzhen  Hangzhou Huawang

Modest diversification

The 3 months correlation between Penghua and Hangzhou is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Penghua Shenzhen Energy and Hangzhou Huawang New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Huawang New 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 Hangzhou Huawang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Huawang New has no effect on the direction of Penghua Shenzhen i.e., Penghua Shenzhen and Hangzhou Huawang go up and down completely randomly.

Pair Corralation between Penghua Shenzhen and Hangzhou Huawang

Assuming the 90 days trading horizon Penghua Shenzhen is expected to generate 1.55 times less return on investment than Hangzhou Huawang. But when comparing it to its historical volatility, Penghua Shenzhen Energy is 3.35 times less risky than Hangzhou Huawang. It trades about 0.41 of its potential returns per unit of risk. Hangzhou Huawang New is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,250  in Hangzhou Huawang New on September 27, 2024 and sell it today you would earn a total of  97.00  from holding Hangzhou Huawang New or generate 7.76% return on investment over 90 days.

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

Penghua Shenzhen Energy  vs.  Hangzhou Huawang New

Penghua Shenzhen Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Penghua Shenzhen Energy are ranked lower than 14 (%) 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.

Hangzhou Huawang New

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Huawang New are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Huawang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Penghua Shenzhen and Hangzhou Huawang

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

The idea behind Penghua Shenzhen Energy and Hangzhou Huawang New 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.