Correlation Between PennantPark Investment and China Merchants

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Can any of the company-specific risk be diversified away by investing in both PennantPark Investment and China Merchants 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 PennantPark Investment and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PennantPark Investment and China Merchants Port, you can compare the effects of market volatilities on PennantPark Investment and China Merchants 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 PennantPark Investment with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of PennantPark Investment and China Merchants.

Diversification Opportunities for PennantPark Investment and China Merchants

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between PennantPark and China is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding PennantPark Investment and China Merchants Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Port and PennantPark Investment 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 PennantPark Investment are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Port has no effect on the direction of PennantPark Investment i.e., PennantPark Investment and China Merchants go up and down completely randomly.

Pair Corralation between PennantPark Investment and China Merchants

Assuming the 90 days horizon PennantPark Investment is expected to generate 4.44 times less return on investment than China Merchants. In addition to that, PennantPark Investment is 1.2 times more volatile than China Merchants Port. It trades about 0.03 of its total potential returns per unit of risk. China Merchants Port is currently generating about 0.15 per unit of volatility. If you would invest  148.00  in China Merchants Port on September 12, 2024 and sell it today you would earn a total of  7.00  from holding China Merchants Port or generate 4.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

PennantPark Investment  vs.  China Merchants Port

 Performance 
       Timeline  
PennantPark Investment 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennantPark Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.
China Merchants Port 

Risk-Adjusted Performance

13 of 100

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

PennantPark Investment and China Merchants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PennantPark Investment and China Merchants

The main advantage of trading using opposite PennantPark Investment and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PennantPark Investment position performs unexpectedly, China Merchants 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 Merchants will offset losses from the drop in China Merchants' long position.
The idea behind PennantPark Investment and China Merchants Port 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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