Correlation Between Penyao Environmental and China State

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

Diversification Opportunities for Penyao Environmental and China State

0.12

Correlation Coefficient

Penyao Environmental  China State

Average diversification

The 3 months correlation between Penyao and China is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Penyao Environmental Protectio and China State Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China State 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 China State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China State Construction has no effect on the direction of Penyao Environmental i.e., Penyao Environmental and China State go up and down completely randomly.

Pair Corralation between Penyao Environmental and China State

Assuming the 90 days trading horizon Penyao Environmental Protection is expected to generate 1.56 times more return on investment than China State. However, Penyao Environmental is 1.56 times more volatile than China State Construction. It trades about 0.06 of its potential returns per unit of risk. China State Construction is currently generating about -0.02 per unit of risk. If you would invest  545.00  in Penyao Environmental Protection on October 2, 2024 and sell it today you would earn a total of  53.00  from holding Penyao Environmental Protection or generate 9.72% return on investment over 90 days.

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

Penyao Environmental Protectio  vs.  China State Construction

Penyao Environmental

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penyao Environmental Protection are ranked lower than 4 (%) 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.

China State Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China State Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China State 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 China State

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

The idea behind Penyao Environmental Protection and China State Construction 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.