Correlation Between China Energy and WSP Global

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

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

Diversification Opportunities for China Energy and WSP Global

0.76

Correlation Coefficient

China Energy  WSP Global

Poor diversification

The 3 months correlation between China and WSP is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding China Energy Engineering and WSP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WSP Global and China Energy 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 China Energy Engineering are associated (or correlated) with WSP Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WSP Global has no effect on the direction of China Energy i.e., China Energy and WSP Global go up and down completely randomly.

Pair Corralation between China Energy and WSP Global

Assuming the 90 days horizon China Energy Engineering is expected to generate 4.67 times more return on investment than WSP Global. However, China Energy is 4.67 times more volatile than WSP Global. It trades about 0.17 of its potential returns per unit of risk. WSP Global is currently generating about 0.13 per unit of risk. If you would invest  7.32  in China Energy Engineering on September 13, 2024 and sell it today you would earn a total of  4.68  from holding China Energy Engineering or generate 63.93% return on investment over 90 days.

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

China Energy Engineering  vs.  WSP Global

China Energy Engineering

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Energy Engineering are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Energy reported solid returns over the last few months and may actually be approaching a breakup point.

WSP Global

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WSP Global are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WSP Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Energy and WSP Global

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

The idea behind China Energy Engineering and WSP Global 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.