Correlation Between Dr Peng and Wuhan Yangtze

Can any of the company-specific risk be diversified away by investing in both Dr Peng and Wuhan Yangtze 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 Wuhan Yangtze 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 Wuhan Yangtze Communication, you can compare the effects of market volatilities on Dr Peng and Wuhan Yangtze 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 Wuhan Yangtze. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dr Peng and Wuhan Yangtze.

Diversification Opportunities for Dr Peng and Wuhan Yangtze

0.88

Correlation Coefficient

Dr Peng  Wuhan Yangtze

Very poor diversification

The 3 months correlation between 600804 and Wuhan is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dr Peng Telecom and Wuhan Yangtze Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuhan Yangtze Commun 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 Wuhan Yangtze. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuhan Yangtze Commun has no effect on the direction of Dr Peng i.e., Dr Peng and Wuhan Yangtze go up and down completely randomly.

Pair Corralation between Dr Peng and Wuhan Yangtze

Assuming the 90 days trading horizon Dr Peng is expected to generate 1.43 times less return on investment than Wuhan Yangtze. But when comparing it to its historical volatility, Dr Peng Telecom is 1.24 times less risky than Wuhan Yangtze. It trades about 0.15 of its potential returns per unit of risk. Wuhan Yangtze Communication is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,606  in Wuhan Yangtze Communication on September 22, 2024 and sell it today you would earn a total of  934.00  from holding Wuhan Yangtze Communication or generate 58.16% return on investment over 90 days.

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

Dr Peng Telecom  vs.  Wuhan Yangtze Communication

Dr Peng Telecom

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dr Peng Telecom are ranked lower than 12 (%) 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.

Wuhan Yangtze Commun

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Dr Peng and Wuhan Yangtze

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

The idea behind Dr Peng Telecom and Wuhan Yangtze Communication 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 Global Correlations module to find global opportunities by holding instruments from different markets.