Correlation Between Bengang Steel and Penyao Environmental

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

By analyzing existing cross correlation between Bengang Steel Plates and Penyao Environmental Protection, you can compare the effects of market volatilities on Bengang Steel and Penyao Environmental 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 Bengang Steel with a short position of Penyao Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bengang Steel and Penyao Environmental.

Diversification Opportunities for Bengang Steel and Penyao Environmental

0.77

Correlation Coefficient

Bengang Steel  Penyao Environmental

Poor diversification

The 3 months correlation between Bengang and Penyao is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bengang Steel Plates and Penyao Environmental Protectio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penyao Environmental and Bengang Steel 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 Bengang Steel Plates are associated (or correlated) with Penyao Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penyao Environmental has no effect on the direction of Bengang Steel i.e., Bengang Steel and Penyao Environmental go up and down completely randomly.

Pair Corralation between Bengang Steel and Penyao Environmental

Assuming the 90 days trading horizon Bengang Steel Plates is expected to generate 0.92 times more return on investment than Penyao Environmental. However, Bengang Steel Plates is 1.08 times less risky than Penyao Environmental. It trades about 0.22 of its potential returns per unit of risk. Penyao Environmental Protection is currently generating about 0.18 per unit of risk. If you would invest  229.00  in Bengang Steel Plates on September 12, 2024 and sell it today you would earn a total of  126.00  from holding Bengang Steel Plates or generate 55.02% return on investment over 90 days.

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

Bengang Steel Plates  vs.  Penyao Environmental Protectio

Bengang Steel Plates

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bengang Steel Plates are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bengang Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Penyao Environmental

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Penyao Environmental Protection are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Penyao Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bengang Steel and Penyao Environmental

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

The idea behind Bengang Steel Plates and Penyao Environmental Protection 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.