Correlation Between Weichai Power and Schneider Electric

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

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

Diversification Opportunities for Weichai Power and Schneider Electric

-0.01

Correlation Coefficient

Weichai Power  Schneider Electric

Good diversification

The 3 months correlation between Weichai and Schneider is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Power and Schneider Electric SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schneider Electric and Weichai Power 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 Weichai Power are associated (or correlated) with Schneider Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schneider Electric has no effect on the direction of Weichai Power i.e., Weichai Power and Schneider Electric go up and down completely randomly.

Pair Corralation between Weichai Power and Schneider Electric

If you would invest  5,019  in Schneider Electric SA on September 13, 2024 and sell it today you would earn a total of  80.00  from holding Schneider Electric SA or generate 1.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Weichai Power  vs.  Schneider Electric SA

Weichai Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weichai Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Weichai Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schneider Electric

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schneider Electric SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Schneider Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Weichai Power and Schneider Electric

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

The idea behind Weichai Power and Schneider Electric SA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.