Correlation Between Pengxin International and Guangzhou Seagull

Can any of the company-specific risk be diversified away by investing in both Pengxin International and Guangzhou Seagull 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 Pengxin International and Guangzhou Seagull into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pengxin International Mining and Guangzhou Seagull Kitchen, you can compare the effects of market volatilities on Pengxin International and Guangzhou Seagull 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 Pengxin International with a short position of Guangzhou Seagull. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pengxin International and Guangzhou Seagull.

Diversification Opportunities for Pengxin International and Guangzhou Seagull

0.83

Correlation Coefficient

Pengxin International  Guangzhou Seagull

Very poor diversification

The 3 months correlation between Pengxin and Guangzhou is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Pengxin International Mining and Guangzhou Seagull Kitchen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Seagull Kitchen and Pengxin International 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 Pengxin International Mining are associated (or correlated) with Guangzhou Seagull. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Seagull Kitchen has no effect on the direction of Pengxin International i.e., Pengxin International and Guangzhou Seagull go up and down completely randomly.

Pair Corralation between Pengxin International and Guangzhou Seagull

Assuming the 90 days trading horizon Pengxin International is expected to generate 2.4 times less return on investment than Guangzhou Seagull. In addition to that, Pengxin International is 1.14 times more volatile than Guangzhou Seagull Kitchen. It trades about 0.07 of its total potential returns per unit of risk. Guangzhou Seagull Kitchen is currently generating about 0.19 per unit of volatility. If you would invest  243.00  in Guangzhou Seagull Kitchen on September 20, 2024 and sell it today you would earn a total of  88.00  from holding Guangzhou Seagull Kitchen or generate 36.21% return on investment over 90 days.

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

Pengxin International Mining  vs.  Guangzhou Seagull Kitchen

Pengxin International

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pengxin International Mining are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pengxin International sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Seagull Kitchen

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Seagull Kitchen are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Seagull sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pengxin International and Guangzhou Seagull

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

The idea behind Pengxin International Mining and Guangzhou Seagull Kitchen 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.