Correlation Between Shenwu Energy and Guosheng Financial

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

Diversification Opportunities for Shenwu Energy and Guosheng Financial

0.31

Correlation Coefficient

Shenwu Energy  Guosheng Financial

Weak diversification

The 3 months correlation between Shenwu and Guosheng is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Guosheng Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guosheng Financial 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 Guosheng Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guosheng Financial has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Guosheng Financial go up and down completely randomly.

Pair Corralation between Shenwu Energy and Guosheng Financial

Assuming the 90 days trading horizon Shenwu Energy Saving is expected to under-perform the Guosheng Financial. In addition to that, Shenwu Energy is 1.07 times more volatile than Guosheng Financial Holding. It trades about -0.08 of its total potential returns per unit of risk. Guosheng Financial Holding is currently generating about 0.05 per unit of volatility. If you would invest  1,290  in Guosheng Financial Holding on December 3, 2024 and sell it today you would earn a total of  112.00  from holding Guosheng Financial Holding or generate 8.68% return on investment over 90 days.

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

Shenwu Energy Saving  vs.  Guosheng Financial Holding

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Guosheng Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guosheng Financial Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guosheng Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenwu Energy and Guosheng Financial

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

The idea behind Shenwu Energy Saving and Guosheng Financial Holding 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.