Correlation Between Penghua Shenzhen and China Fund

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

By analyzing existing cross correlation between Penghua Shenzhen Energy and China Fund Management, you can compare the effects of market volatilities on Penghua Shenzhen and China Fund 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 Penghua Shenzhen with a short position of China Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penghua Shenzhen and China Fund.

Diversification Opportunities for Penghua Shenzhen and China Fund

0.77

Correlation Coefficient

Penghua Shenzhen  China Fund

Poor diversification

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

Pair Corralation between Penghua Shenzhen and China Fund

Assuming the 90 days trading horizon Penghua Shenzhen Energy is expected to under-perform the China Fund. In addition to that, Penghua Shenzhen is 1.34 times more volatile than China Fund Management. It trades about -0.06 of its total potential returns per unit of risk. China Fund Management is currently generating about -0.08 per unit of volatility. If you would invest  1,022  in China Fund Management on September 3, 2024 and sell it today you would lose (17.00) from holding China Fund Management or give up 1.66% of portfolio value over 90 days.

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

Penghua Shenzhen Energy  vs.  China Fund Management

Penghua Shenzhen Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Penghua Shenzhen Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Penghua Shenzhen is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Fund Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Fund Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Penghua Shenzhen and China Fund

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

The idea behind Penghua Shenzhen Energy and China Fund Management 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.