Correlation Between China BlueChemical and ENTERGY

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

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

Diversification Opportunities for China BlueChemical and ENTERGY

0.38

Correlation Coefficient

China BlueChemical  ENTERGY

Weak diversification

The 3 months correlation between China and ENTERGY is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China BlueChemical and ENTERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENTERGY and China BlueChemical 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 BlueChemical are associated (or correlated) with ENTERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENTERGY has no effect on the direction of China BlueChemical i.e., China BlueChemical and ENTERGY go up and down completely randomly.

Pair Corralation between China BlueChemical and ENTERGY

Assuming the 90 days horizon China BlueChemical is expected to generate 1.47 times more return on investment than ENTERGY. However, China BlueChemical is 1.47 times more volatile than ENTERGY. It trades about 0.11 of its potential returns per unit of risk. ENTERGY is currently generating about 0.14 per unit of risk. If you would invest  20.00  in China BlueChemical on September 17, 2024 and sell it today you would earn a total of  5.00  from holding China BlueChemical or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

China BlueChemical  vs.  ENTERGY

China BlueChemical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China BlueChemical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, China BlueChemical reported solid returns over the last few months and may actually be approaching a breakup point.

ENTERGY

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ENTERGY are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ENTERGY exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China BlueChemical and ENTERGY

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

The idea behind China BlueChemical and ENTERGY 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.