Correlation Between Huaxia Fund and Penghua Shenzhen

Can any of the company-specific risk be diversified away by investing in both Huaxia Fund and Penghua Shenzhen 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 Huaxia Fund and Penghua Shenzhen into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Huaxia Fund Management and Penghua Shenzhen Energy, you can compare the effects of market volatilities on Huaxia Fund and Penghua Shenzhen 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 Huaxia Fund with a short position of Penghua Shenzhen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaxia Fund and Penghua Shenzhen.

Diversification Opportunities for Huaxia Fund and Penghua Shenzhen

0.91

Correlation Coefficient

Huaxia Fund  Penghua Shenzhen

Almost no diversification

The 3 months correlation between Huaxia and Penghua is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Huaxia Fund Management and Penghua Shenzhen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penghua Shenzhen Energy and Huaxia Fund 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 Huaxia Fund Management are associated (or correlated) with Penghua Shenzhen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penghua Shenzhen Energy has no effect on the direction of Huaxia Fund i.e., Huaxia Fund and Penghua Shenzhen go up and down completely randomly.

Pair Corralation between Huaxia Fund and Penghua Shenzhen

Assuming the 90 days trading horizon Huaxia Fund Management is expected to generate 1.31 times more return on investment than Penghua Shenzhen. However, Huaxia Fund is 1.31 times more volatile than Penghua Shenzhen Energy. It trades about 0.13 of its potential returns per unit of risk. Penghua Shenzhen Energy is currently generating about 0.1 per unit of risk. If you would invest  212.00  in Huaxia Fund Management on October 5, 2024 and sell it today you would earn a total of  87.00  from holding Huaxia Fund Management or generate 41.04% return on investment over 90 days.

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

Huaxia Fund Management  vs.  Penghua Shenzhen Energy

Huaxia Fund Management

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Huaxia Fund Management are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huaxia Fund sustained solid returns over the last few months and may actually be approaching a breakup point.

Penghua Shenzhen Energy

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Penghua Shenzhen Energy are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Penghua Shenzhen may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Huaxia Fund and Penghua Shenzhen

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

The idea behind Huaxia Fund Management and Penghua Shenzhen Energy 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 Transaction History module to view history of all your transactions and understand their impact on performance.