Correlation Between Penyao Environmental and Bengang Steel

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

By analyzing existing cross correlation between Penyao Environmental Protection and Bengang Steel Plates, you can compare the effects of market volatilities on Penyao Environmental and Bengang Steel 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 Penyao Environmental with a short position of Bengang Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penyao Environmental and Bengang Steel.

Diversification Opportunities for Penyao Environmental and Bengang Steel

0.81

Correlation Coefficient

Penyao Environmental  Bengang Steel

Very poor diversification

The 3 months correlation between Penyao and Bengang is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Penyao Environmental Protectio and Bengang Steel Plates in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bengang Steel Plates and Penyao Environmental 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 Penyao Environmental Protection are associated (or correlated) with Bengang Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bengang Steel Plates has no effect on the direction of Penyao Environmental i.e., Penyao Environmental and Bengang Steel go up and down completely randomly.

Pair Corralation between Penyao Environmental and Bengang Steel

Assuming the 90 days trading horizon Penyao Environmental Protection is expected to generate 1.07 times more return on investment than Bengang Steel. However, Penyao Environmental is 1.07 times more volatile than Bengang Steel Plates. It trades about 0.21 of its potential returns per unit of risk. Bengang Steel Plates is currently generating about 0.19 per unit of risk. If you would invest  405.00  in Penyao Environmental Protection on September 2, 2024 and sell it today you would earn a total of  230.00  from holding Penyao Environmental Protection or generate 56.79% return on investment over 90 days.

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

Penyao Environmental Protectio  vs.  Bengang Steel Plates

Penyao Environmental

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Penyao Environmental Protection are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Penyao Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Bengang Steel Plates

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bengang Steel Plates are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bengang Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penyao Environmental and Bengang Steel

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

The idea behind Penyao Environmental Protection and Bengang Steel Plates 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.