Correlation Between Dr Peng and China Sports

Can any of the company-specific risk be diversified away by investing in both Dr Peng and China Sports 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 Dr Peng and China Sports into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dr Peng Telecom and China Sports Industry, you can compare the effects of market volatilities on Dr Peng and China Sports 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 Dr Peng with a short position of China Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dr Peng and China Sports.

Diversification Opportunities for Dr Peng and China Sports

0.6

Correlation Coefficient

Dr Peng  China Sports

Poor diversification

The 3 months correlation between 600804 and China is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Dr Peng Telecom and China Sports Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Sports Industry and Dr Peng 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 Dr Peng Telecom are associated (or correlated) with China Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Sports Industry has no effect on the direction of Dr Peng i.e., Dr Peng and China Sports go up and down completely randomly.

Pair Corralation between Dr Peng and China Sports

Assuming the 90 days trading horizon Dr Peng Telecom is expected to generate 1.48 times more return on investment than China Sports. However, Dr Peng is 1.48 times more volatile than China Sports Industry. It trades about 0.07 of its potential returns per unit of risk. China Sports Industry is currently generating about 0.05 per unit of risk. If you would invest  156.00  in Dr Peng Telecom on September 30, 2024 and sell it today you would earn a total of  22.00  from holding Dr Peng Telecom or generate 14.1% return on investment over 90 days.

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

Dr Peng Telecom  vs.  China Sports Industry

Dr Peng Telecom

Risk-Adjusted Performance

5 of 100

Modest

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

China Sports Industry

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Sports Industry are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Sports may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dr Peng and China Sports

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

The idea behind Dr Peng Telecom and China Sports Industry 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.