Correlation Between Tieling Newcity and Henan Shenhuo

Can any of the company-specific risk be diversified away by investing in both Tieling Newcity and Henan Shenhuo 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 Tieling Newcity and Henan Shenhuo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tieling Newcity Investment and Henan Shenhuo Coal, you can compare the effects of market volatilities on Tieling Newcity and Henan Shenhuo 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 Tieling Newcity with a short position of Henan Shenhuo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tieling Newcity and Henan Shenhuo.

Diversification Opportunities for Tieling Newcity and Henan Shenhuo

0.06

Correlation Coefficient

Tieling Newcity  Henan Shenhuo

Significant diversification

The 3 months correlation between Tieling and Henan is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Tieling Newcity Investment and Henan Shenhuo Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shenhuo Coal and Tieling Newcity 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 Tieling Newcity Investment are associated (or correlated) with Henan Shenhuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shenhuo Coal has no effect on the direction of Tieling Newcity i.e., Tieling Newcity and Henan Shenhuo go up and down completely randomly.

Pair Corralation between Tieling Newcity and Henan Shenhuo

Assuming the 90 days trading horizon Tieling Newcity is expected to generate 1.42 times less return on investment than Henan Shenhuo. In addition to that, Tieling Newcity is 1.14 times more volatile than Henan Shenhuo Coal. It trades about 0.01 of its total potential returns per unit of risk. Henan Shenhuo Coal is currently generating about 0.02 per unit of volatility. If you would invest  1,536  in Henan Shenhuo Coal on September 23, 2024 and sell it today you would earn a total of  82.00  from holding Henan Shenhuo Coal or generate 5.34% return on investment over 90 days.

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

Tieling Newcity Investment  vs.  Henan Shenhuo Coal

Tieling Newcity Inve

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tieling Newcity Investment are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tieling Newcity sustained solid returns over the last few months and may actually be approaching a breakup point.

Henan Shenhuo Coal

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Henan Shenhuo Coal are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Henan Shenhuo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tieling Newcity and Henan Shenhuo

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

The idea behind Tieling Newcity Investment and Henan Shenhuo Coal 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.