Correlation Between Penta Ocean and China Communications

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

By analyzing existing cross correlation between Penta Ocean Construction Co and China Communications Services, you can compare the effects of market volatilities on Penta Ocean and China Communications 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 Penta Ocean with a short position of China Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penta Ocean and China Communications.

Diversification Opportunities for Penta Ocean and China Communications

0.2

Correlation Coefficient

Penta Ocean  China Communications

Modest diversification

The 3 months correlation between Penta and China is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Penta Ocean Construction Co and China Communications Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Communications and Penta Ocean 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 Penta Ocean Construction Co are associated (or correlated) with China Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Communications has no effect on the direction of Penta Ocean i.e., Penta Ocean and China Communications go up and down completely randomly.

Pair Corralation between Penta Ocean and China Communications

Assuming the 90 days horizon Penta Ocean is expected to generate 10.57 times less return on investment than China Communications. But when comparing it to its historical volatility, Penta Ocean Construction Co is 1.52 times less risky than China Communications. It trades about 0.02 of its potential returns per unit of risk. China Communications Services is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  44.00  in China Communications Services on September 21, 2024 and sell it today you would earn a total of  8.00  from holding China Communications Services or generate 18.18% return on investment over 90 days.

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

Penta Ocean Construction Co  vs.  China Communications Services

Penta Ocean Construc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Penta Ocean Construction Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penta Ocean is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Communications

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penta Ocean and China Communications

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

The idea behind Penta Ocean Construction Co and China Communications Services 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .