Correlation Between China Power and Primo Brands

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

By analyzing existing cross correlation between China Power Equipment and Primo Brands, you can compare the effects of market volatilities on China Power and Primo Brands 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 China Power with a short position of Primo Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Power and Primo Brands.

Diversification Opportunities for China Power and Primo Brands

0.0

Correlation Coefficient

China Power  Primo Brands

Pay attention - limited upside

The 3 months correlation between China and Primo is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Power Equipment and Primo Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primo Brands and China Power 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 China Power Equipment are associated (or correlated) with Primo Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primo Brands has no effect on the direction of China Power i.e., China Power and Primo Brands go up and down completely randomly.

Pair Corralation between China Power and Primo Brands

If you would invest  3,109  in Primo Brands on October 26, 2024 and sell it today you would earn a total of  163.00  from holding Primo Brands or generate 5.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

China Power Equipment  vs.  Primo Brands

China Power Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Power Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, China Power is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Primo Brands

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with China Power and Primo Brands

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

The idea behind China Power Equipment and Primo Brands 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.