Correlation Between PLAYWITH and Hannong Chemicals

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

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

Diversification Opportunities for PLAYWITH and Hannong Chemicals

0.62

Correlation Coefficient

PLAYWITH  Hannong Chemicals

Poor diversification

The 3 months correlation between PLAYWITH and Hannong is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding PLAYWITH and Hannong Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hannong Chemicals and PLAYWITH 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 PLAYWITH are associated (or correlated) with Hannong Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hannong Chemicals has no effect on the direction of PLAYWITH i.e., PLAYWITH and Hannong Chemicals go up and down completely randomly.

Pair Corralation between PLAYWITH and Hannong Chemicals

Assuming the 90 days trading horizon PLAYWITH is expected to under-perform the Hannong Chemicals. In addition to that, PLAYWITH is 1.25 times more volatile than Hannong Chemicals. It trades about -0.25 of its total potential returns per unit of risk. Hannong Chemicals is currently generating about -0.18 per unit of volatility. If you would invest  2,085,000  in Hannong Chemicals on September 21, 2024 and sell it today you would lose (706,000) from holding Hannong Chemicals or give up 33.86% of portfolio value over 90 days.

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

PLAYWITH  vs.  Hannong Chemicals

PLAYWITH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PLAYWITH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hannong Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hannong Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with PLAYWITH and Hannong Chemicals

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

The idea behind PLAYWITH and Hannong Chemicals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.