Correlation Between China High and Shenwu Energy

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

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

Diversification Opportunities for China High and Shenwu Energy

0.3

Correlation Coefficient

China High  Shenwu Energy

Weak diversification

The 3 months correlation between China and Shenwu is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding China High Speed Railway and Shenwu Energy Saving in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenwu Energy Saving and China High 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 High Speed Railway are associated (or correlated) with Shenwu Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenwu Energy Saving has no effect on the direction of China High i.e., China High and Shenwu Energy go up and down completely randomly.

Pair Corralation between China High and Shenwu Energy

Assuming the 90 days trading horizon China High Speed Railway is expected to under-perform the Shenwu Energy. But the stock apears to be less risky and, when comparing its historical volatility, China High Speed Railway is 1.76 times less risky than Shenwu Energy. The stock trades about -0.07 of its potential returns per unit of risk. The Shenwu Energy Saving is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  345.00  in Shenwu Energy Saving on December 24, 2024 and sell it today you would lose (40.00) from holding Shenwu Energy Saving or give up 11.59% of portfolio value over 90 days.

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

China High Speed Railway  vs.  Shenwu Energy Saving

China High Speed

Risk-Adjusted Performance

Very Weak

Over the last 90 days China High Speed Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shenwu Energy Saving

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenwu Energy Saving has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China High and Shenwu Energy

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

The idea behind China High Speed Railway and Shenwu Energy Saving 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.