Correlation Between Penyao Environmental and Youyou Foods

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

Diversification Opportunities for Penyao Environmental and Youyou Foods

0.8

Correlation Coefficient

Penyao Environmental  Youyou Foods

Very poor diversification

The 3 months correlation between Penyao and Youyou is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Penyao Environmental Protectio and Youyou Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youyou Foods 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 Youyou Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youyou Foods has no effect on the direction of Penyao Environmental i.e., Penyao Environmental and Youyou Foods go up and down completely randomly.

Pair Corralation between Penyao Environmental and Youyou Foods

Assuming the 90 days trading horizon Penyao Environmental is expected to generate 1.37 times less return on investment than Youyou Foods. But when comparing it to its historical volatility, Penyao Environmental Protection is 1.05 times less risky than Youyou Foods. It trades about 0.02 of its potential returns per unit of risk. Youyou Foods Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  913.00  in Youyou Foods Co on October 6, 2024 and sell it today you would earn a total of  83.00  from holding Youyou Foods Co or generate 9.09% 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.  Youyou Foods Co

Penyao Environmental

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, Penyao Environmental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Youyou Foods

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Youyou Foods Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Youyou Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penyao Environmental and Youyou Foods

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

The idea behind Penyao Environmental Protection and Youyou Foods Co 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.