Correlation Between Panda Financial and Shenwu Energy

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

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

Diversification Opportunities for Panda Financial and Shenwu Energy

0.7

Correlation Coefficient

Panda Financial  Shenwu Energy

Poor diversification

The 3 months correlation between Panda and Shenwu is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Panda Financial Holding and Shenwu Energy Saving in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenwu Energy Saving and Panda Financial 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 Financial Holding are associated (or correlated) with Shenwu Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenwu Energy Saving has no effect on the direction of Panda Financial i.e., Panda Financial and Shenwu Energy go up and down completely randomly.

Pair Corralation between Panda Financial and Shenwu Energy

Assuming the 90 days trading horizon Panda Financial is expected to generate 1.8 times less return on investment than Shenwu Energy. But when comparing it to its historical volatility, Panda Financial Holding is 1.29 times less risky than Shenwu Energy. It trades about 0.18 of its potential returns per unit of risk. Shenwu Energy Saving is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  248.00  in Shenwu Energy Saving on September 16, 2024 and sell it today you would earn a total of  174.00  from holding Shenwu Energy Saving or generate 70.16% return on investment over 90 days.

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

Panda Financial Holding  vs.  Shenwu Energy Saving

Panda Financial Holding

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Panda Financial Holding are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Panda Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenwu Energy Saving

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenwu Energy Saving are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenwu Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Panda Financial and Shenwu Energy

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

The idea behind Panda Financial Holding and Shenwu Energy Saving 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.