Correlation Between Penyao Environmental and Shaanxi Construction

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

Diversification Opportunities for Penyao Environmental and Shaanxi Construction

0.4

Correlation Coefficient

Penyao Environmental  Shaanxi Construction

Very weak diversification

The 3 months correlation between Penyao and Shaanxi is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Penyao Environmental Protectio and Shaanxi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Construction 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 Shaanxi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Construction has no effect on the direction of Penyao Environmental i.e., Penyao Environmental and Shaanxi Construction go up and down completely randomly.

Pair Corralation between Penyao Environmental and Shaanxi Construction

Assuming the 90 days trading horizon Penyao Environmental Protection is expected to generate 0.75 times more return on investment than Shaanxi Construction. However, Penyao Environmental Protection is 1.33 times less risky than Shaanxi Construction. It trades about -0.15 of its potential returns per unit of risk. Shaanxi Construction Machinery is currently generating about -0.11 per unit of risk. If you would invest  590.00  in Penyao Environmental Protection on October 10, 2024 and sell it today you would lose (61.00) from holding Penyao Environmental Protection or give up 10.34% of portfolio value over 90 days.

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

Penyao Environmental Protectio  vs.  Shaanxi Construction Machinery

Penyao Environmental

Risk-Adjusted Performance

3 of 100

Insignificant

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

Shaanxi Construction

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Construction Machinery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penyao Environmental and Shaanxi Construction

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

The idea behind Penyao Environmental Protection and Shaanxi Construction Machinery 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .