Correlation Between Power Wind and General Plastic

Can any of the company-specific risk be diversified away by investing in both Power Wind and General Plastic 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 Power Wind and General Plastic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Power Wind Health and General Plastic Industrial, you can compare the effects of market volatilities on Power Wind and General Plastic 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 Power Wind with a short position of General Plastic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Wind and General Plastic.

Diversification Opportunities for Power Wind and General Plastic

0.79

Correlation Coefficient

Power Wind  General Plastic

Poor diversification

The 3 months correlation between Power and General is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Power Wind Health and General Plastic Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Plastic Indu and Power Wind 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 Power Wind Health are associated (or correlated) with General Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Plastic Indu has no effect on the direction of Power Wind i.e., Power Wind and General Plastic go up and down completely randomly.

Pair Corralation between Power Wind and General Plastic

Assuming the 90 days trading horizon Power Wind Health is expected to generate 3.1 times more return on investment than General Plastic. However, Power Wind is 3.1 times more volatile than General Plastic Industrial. It trades about 0.12 of its potential returns per unit of risk. General Plastic Industrial is currently generating about 0.23 per unit of risk. If you would invest  11,150  in Power Wind Health on December 30, 2024 and sell it today you would earn a total of  1,650  from holding Power Wind Health or generate 14.8% return on investment over 90 days.

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

Power Wind Health  vs.  General Plastic Industrial

Power Wind Health

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Power Wind Health are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Power Wind showed solid returns over the last few months and may actually be approaching a breakup point.

General Plastic Indu

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Plastic Industrial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, General Plastic may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Power Wind and General Plastic

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

The idea behind Power Wind Health and General Plastic Industrial 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.