Correlation Between Shanghai CEO and Penghua Shenzhen

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

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

Diversification Opportunities for Shanghai CEO and Penghua Shenzhen

-0.21

Correlation Coefficient

Shanghai CEO  Penghua Shenzhen

Very good diversification

The 3 months correlation between Shanghai and Penghua is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai CEO Environmental 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 Shanghai CEO 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 Shanghai CEO Environmental 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 Shanghai CEO i.e., Shanghai CEO and Penghua Shenzhen go up and down completely randomly.

Pair Corralation between Shanghai CEO and Penghua Shenzhen

Assuming the 90 days trading horizon Shanghai CEO Environmental is expected to under-perform the Penghua Shenzhen. In addition to that, Shanghai CEO is 3.73 times more volatile than Penghua Shenzhen Energy. It trades about -0.04 of its total potential returns per unit of risk. Penghua Shenzhen Energy is currently generating about 0.1 per unit of volatility. If you would invest  518.00  in Penghua Shenzhen Energy on October 5, 2024 and sell it today you would earn a total of  115.00  from holding Penghua Shenzhen Energy or generate 22.2% return on investment over 90 days.

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

Shanghai CEO Environmental  vs.  Penghua Shenzhen Energy

Shanghai CEO Environ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai CEO Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Shanghai CEO and Penghua Shenzhen

The main advantage of trading using opposite Shanghai CEO and Penghua Shenzhen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai CEO 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 Shanghai CEO Environmental 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.