Correlation Between PKU HealthCare and Chengdu Kanghua

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

By analyzing existing cross correlation between PKU HealthCare Corp and Chengdu Kanghua Biological, you can compare the effects of market volatilities on PKU HealthCare and Chengdu Kanghua 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 PKU HealthCare with a short position of Chengdu Kanghua. Check out your portfolio center. Please also check ongoing floating volatility patterns of PKU HealthCare and Chengdu Kanghua.

Diversification Opportunities for PKU HealthCare and Chengdu Kanghua

0.81

Correlation Coefficient

PKU HealthCare  Chengdu Kanghua

Very poor diversification

The 3 months correlation between PKU and Chengdu is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding PKU HealthCare Corp and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol and PKU HealthCare 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 PKU HealthCare Corp are associated (or correlated) with Chengdu Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of PKU HealthCare i.e., PKU HealthCare and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between PKU HealthCare and Chengdu Kanghua

Assuming the 90 days trading horizon PKU HealthCare Corp is expected to generate 0.56 times more return on investment than Chengdu Kanghua. However, PKU HealthCare Corp is 1.8 times less risky than Chengdu Kanghua. It trades about 0.14 of its potential returns per unit of risk. Chengdu Kanghua Biological is currently generating about 0.06 per unit of risk. If you would invest  527.00  in PKU HealthCare Corp on September 3, 2024 and sell it today you would earn a total of  114.00  from holding PKU HealthCare Corp or generate 21.63% return on investment over 90 days.

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

PKU HealthCare Corp  vs.  Chengdu Kanghua Biological

PKU HealthCare Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PKU HealthCare Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PKU HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.

Chengdu Kanghua Biol

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Kanghua Biological are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Kanghua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PKU HealthCare and Chengdu Kanghua

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

The idea behind PKU HealthCare Corp and Chengdu Kanghua Biological 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.