Correlation Between Panda Dairy and Jizhong Energy

Can any of the company-specific risk be diversified away by investing in both Panda Dairy and Jizhong Energy 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 Panda Dairy and Jizhong Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Panda Dairy Corp and Jizhong Energy Resources, you can compare the effects of market volatilities on Panda Dairy and Jizhong Energy 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 Panda Dairy with a short position of Jizhong Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Panda Dairy and Jizhong Energy.

Diversification Opportunities for Panda Dairy and Jizhong Energy

0.9

Correlation Coefficient

Panda Dairy  Jizhong Energy

Almost no diversification

The 3 months correlation between Panda and Jizhong is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Panda Dairy Corp and Jizhong Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jizhong Energy Resources and Panda Dairy 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 Panda Dairy Corp are associated (or correlated) with Jizhong Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jizhong Energy Resources has no effect on the direction of Panda Dairy i.e., Panda Dairy and Jizhong Energy go up and down completely randomly.

Pair Corralation between Panda Dairy and Jizhong Energy

Assuming the 90 days trading horizon Panda Dairy Corp is expected to generate 2.11 times more return on investment than Jizhong Energy. However, Panda Dairy is 2.11 times more volatile than Jizhong Energy Resources. It trades about 0.25 of its potential returns per unit of risk. Jizhong Energy Resources is currently generating about 0.17 per unit of risk. If you would invest  1,565  in Panda Dairy Corp on September 12, 2024 and sell it today you would earn a total of  1,436  from holding Panda Dairy Corp or generate 91.76% return on investment over 90 days.

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

Panda Dairy Corp  vs.  Jizhong Energy Resources

Panda Dairy Corp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Panda Dairy Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Panda Dairy sustained solid returns over the last few months and may actually be approaching a breakup point.

Jizhong Energy Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jizhong Energy Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jizhong Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Panda Dairy and Jizhong Energy

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

The idea behind Panda Dairy Corp and Jizhong Energy Resources 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.