Correlation Between Shenwu Energy and China High

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

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

Diversification Opportunities for Shenwu Energy and China High

0.3

Correlation Coefficient

Shenwu Energy  China High

Weak diversification

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

Pair Corralation between Shenwu Energy and China High

Assuming the 90 days trading horizon Shenwu Energy Saving is expected to generate 1.76 times more return on investment than China High. However, Shenwu Energy is 1.76 times more volatile than China High Speed Railway. It trades about -0.02 of its potential returns per unit of risk. China High Speed Railway is currently generating about -0.07 per unit of risk. 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

Shenwu Energy Saving  vs.  China High Speed Railway

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.

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.

Pair Trading with Shenwu Energy and China High

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

The idea behind Shenwu Energy Saving and China High Speed Railway 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.