Correlation Between Shenwu Energy and Tongyu Communication

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

Diversification Opportunities for Shenwu Energy and Tongyu Communication

0.19

Correlation Coefficient

Shenwu Energy  Tongyu Communication

Average diversification

The 3 months correlation between Shenwu and Tongyu is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Tongyu Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongyu Communication 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 Tongyu Communication. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongyu Communication has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Tongyu Communication go up and down completely randomly.

Pair Corralation between Shenwu Energy and Tongyu Communication

Assuming the 90 days trading horizon Shenwu Energy Saving is expected to generate 1.92 times more return on investment than Tongyu Communication. However, Shenwu Energy is 1.92 times more volatile than Tongyu Communication. It trades about 0.09 of its potential returns per unit of risk. Tongyu Communication is currently generating about -0.04 per unit of risk. If you would invest  345.00  in Shenwu Energy Saving on October 25, 2024 and sell it today you would earn a total of  28.00  from holding Shenwu Energy Saving or generate 8.12% return on investment over 90 days.

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

Shenwu Energy Saving  vs.  Tongyu Communication

Shenwu Energy Saving

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenwu Energy Saving are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shenwu Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tongyu Communication

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tongyu Communication are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongyu Communication may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shenwu Energy and Tongyu Communication

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

The idea behind Shenwu Energy Saving and Tongyu Communication 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.