Correlation Between Power Assets and CGN Power

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

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

Diversification Opportunities for Power Assets and CGN Power

0.47

Correlation Coefficient

Power Assets  CGN Power

Very weak diversification

The 3 months correlation between Power and CGN is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Power Assets Holdings and CGN Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGN Power and Power Assets 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 Assets Holdings are associated (or correlated) with CGN Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGN Power has no effect on the direction of Power Assets i.e., Power Assets and CGN Power go up and down completely randomly.

Pair Corralation between Power Assets and CGN Power

Assuming the 90 days horizon Power Assets Holdings is expected to generate 0.51 times more return on investment than CGN Power. However, Power Assets Holdings is 1.96 times less risky than CGN Power. It trades about 0.1 of its potential returns per unit of risk. CGN Power Co is currently generating about 0.01 per unit of risk. If you would invest  610.00  in Power Assets Holdings on September 22, 2024 and sell it today you would earn a total of  30.00  from holding Power Assets Holdings or generate 4.92% return on investment over 90 days.

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

Power Assets Holdings  vs.  CGN Power Co

Power Assets Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Assets Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Power Assets is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CGN Power

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CGN Power Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CGN Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Power Assets and CGN Power

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

The idea behind Power Assets Holdings and CGN Power Co 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.