Correlation Between Shenwu Energy and Shenzhen Sunlord

Can any of the company-specific risk be diversified away by investing in both Shenwu Energy and Shenzhen Sunlord 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 Shenzhen Sunlord 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 Shenzhen Sunlord Electronics, you can compare the effects of market volatilities on Shenwu Energy and Shenzhen Sunlord 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 Shenzhen Sunlord. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenwu Energy and Shenzhen Sunlord.

Diversification Opportunities for Shenwu Energy and Shenzhen Sunlord

0.89

Correlation Coefficient

Shenwu Energy  Shenzhen Sunlord

Very poor diversification

The 3 months correlation between Shenwu and Shenzhen is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Shenzhen Sunlord Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Sunlord Ele 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 Shenzhen Sunlord. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Sunlord Ele has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Shenzhen Sunlord go up and down completely randomly.

Pair Corralation between Shenwu Energy and Shenzhen Sunlord

Assuming the 90 days trading horizon Shenwu Energy Saving is expected to generate 1.56 times more return on investment than Shenzhen Sunlord. However, Shenwu Energy is 1.56 times more volatile than Shenzhen Sunlord Electronics. It trades about 0.15 of its potential returns per unit of risk. Shenzhen Sunlord Electronics is currently generating about 0.06 per unit of risk. If you would invest  208.00  in Shenwu Energy Saving on September 19, 2024 and sell it today you would earn a total of  191.00  from holding Shenwu Energy Saving or generate 91.83% return on investment over 90 days.

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

Shenwu Energy Saving  vs.  Shenzhen Sunlord Electronics

Shenwu Energy Saving

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenwu Energy Saving are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenwu Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Sunlord Ele

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Shenwu Energy and Shenzhen Sunlord

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

The idea behind Shenwu Energy Saving and Shenzhen Sunlord Electronics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.