Correlation Between Playtech Plc and China Resources

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

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

Diversification Opportunities for Playtech Plc and China Resources

0.63

Correlation Coefficient

Playtech Plc  China Resources

Poor diversification

The 3 months correlation between Playtech and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Playtech plc and China Resources Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Gas and Playtech Plc 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 Playtech plc are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Gas has no effect on the direction of Playtech Plc i.e., Playtech Plc and China Resources go up and down completely randomly.

Pair Corralation between Playtech Plc and China Resources

Assuming the 90 days trading horizon Playtech Plc is expected to generate 2.03 times less return on investment than China Resources. But when comparing it to its historical volatility, Playtech plc is 1.75 times less risky than China Resources. It trades about 0.06 of its potential returns per unit of risk. China Resources Gas is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  154.00  in China Resources Gas on September 14, 2024 and sell it today you would earn a total of  206.00  from holding China Resources Gas or generate 133.77% return on investment over 90 days.

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

Playtech plc  vs.  China Resources Gas

Playtech plc

Risk-Adjusted Performance

10 of 100

Good

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

China Resources Gas

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Gas are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Playtech Plc and China Resources

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

The idea behind Playtech plc and China Resources Gas 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.