Correlation Between Penyao Environmental and Shenzhen Changfang

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

Diversification Opportunities for Penyao Environmental and Shenzhen Changfang

-0.14

Correlation Coefficient

Penyao Environmental  Shenzhen Changfang

Good diversification

The 3 months correlation between Penyao and Shenzhen is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Penyao Environmental Protectio and Shenzhen Changfang Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Changfang Light 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 Shenzhen Changfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Changfang Light has no effect on the direction of Penyao Environmental i.e., Penyao Environmental and Shenzhen Changfang go up and down completely randomly.

Pair Corralation between Penyao Environmental and Shenzhen Changfang

Assuming the 90 days trading horizon Penyao Environmental Protection is expected to under-perform the Shenzhen Changfang. But the stock apears to be less risky and, when comparing its historical volatility, Penyao Environmental Protection is 1.18 times less risky than Shenzhen Changfang. The stock trades about -0.15 of its potential returns per unit of risk. The Shenzhen Changfang Light is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  183.00  in Shenzhen Changfang Light on December 1, 2024 and sell it today you would lose (8.00) from holding Shenzhen Changfang Light or give up 4.37% of portfolio value over 90 days.

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

Penyao Environmental Protectio  vs.  Shenzhen Changfang Light

Penyao Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penyao Environmental Protection has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shenzhen Changfang Light

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Penyao Environmental and Shenzhen Changfang

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

The idea behind Penyao Environmental Protection and Shenzhen Changfang Light 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.