Correlation Between PennantPark Investment and HUTCHMED DRC

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

By analyzing existing cross correlation between PennantPark Investment and HUTCHMED DRC, you can compare the effects of market volatilities on PennantPark Investment and HUTCHMED DRC 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 PennantPark Investment with a short position of HUTCHMED DRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennantPark Investment and HUTCHMED DRC.

Diversification Opportunities for PennantPark Investment and HUTCHMED DRC

-0.14

Correlation Coefficient

PennantPark Investment  HUTCHMED DRC

Good diversification

The 3 months correlation between PennantPark and HUTCHMED is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding PennantPark Investment and HUTCHMED DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUTCHMED DRC and PennantPark Investment 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 PennantPark Investment are associated (or correlated) with HUTCHMED DRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUTCHMED DRC has no effect on the direction of PennantPark Investment i.e., PennantPark Investment and HUTCHMED DRC go up and down completely randomly.

Pair Corralation between PennantPark Investment and HUTCHMED DRC

Given the investment horizon of 90 days PennantPark Investment is expected to generate 0.35 times more return on investment than HUTCHMED DRC. However, PennantPark Investment is 2.85 times less risky than HUTCHMED DRC. It trades about 0.01 of its potential returns per unit of risk. HUTCHMED DRC is currently generating about -0.03 per unit of risk. If you would invest  696.00  in PennantPark Investment on September 24, 2024 and sell it today you would lose (1.00) from holding PennantPark Investment or give up 0.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

PennantPark Investment  vs.  HUTCHMED DRC

PennantPark Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, PennantPark Investment is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

HUTCHMED DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HUTCHMED DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with PennantPark Investment and HUTCHMED DRC

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

The idea behind PennantPark Investment and HUTCHMED DRC 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.