Correlation Between Shenyang Huitian and Beijing Shunxin

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

By analyzing existing cross correlation between Shenyang Huitian Thermal and Beijing Shunxin Agriculture, you can compare the effects of market volatilities on Shenyang Huitian and Beijing Shunxin 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 Shenyang Huitian with a short position of Beijing Shunxin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Huitian and Beijing Shunxin.

Diversification Opportunities for Shenyang Huitian and Beijing Shunxin

0.83

Correlation Coefficient

Shenyang Huitian  Beijing Shunxin

Very poor diversification

The 3 months correlation between Shenyang and Beijing is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Huitian Thermal and Beijing Shunxin Agriculture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Shunxin Agri and Shenyang Huitian 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 Shenyang Huitian Thermal are associated (or correlated) with Beijing Shunxin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Shunxin Agri has no effect on the direction of Shenyang Huitian i.e., Shenyang Huitian and Beijing Shunxin go up and down completely randomly.

Pair Corralation between Shenyang Huitian and Beijing Shunxin

Assuming the 90 days trading horizon Shenyang Huitian Thermal is expected to generate 1.04 times more return on investment than Beijing Shunxin. However, Shenyang Huitian is 1.04 times more volatile than Beijing Shunxin Agriculture. It trades about 0.19 of its potential returns per unit of risk. Beijing Shunxin Agriculture is currently generating about 0.18 per unit of risk. If you would invest  288.00  in Shenyang Huitian Thermal on September 18, 2024 and sell it today you would earn a total of  133.00  from holding Shenyang Huitian Thermal or generate 46.18% return on investment over 90 days.

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

Shenyang Huitian Thermal  vs.  Beijing Shunxin Agriculture

Shenyang Huitian Thermal

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Huitian Thermal are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Huitian sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Shunxin Agri

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Shunxin Agriculture are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Shunxin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenyang Huitian and Beijing Shunxin

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

The idea behind Shenyang Huitian Thermal and Beijing Shunxin Agriculture 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.