Correlation Between Shenwu Energy and Shenzhen Sunway

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

Diversification Opportunities for Shenwu Energy and Shenzhen Sunway

0.55

Correlation Coefficient

Shenwu Energy  Shenzhen Sunway

Very weak diversification

The 3 months correlation between Shenwu and Shenzhen is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Shenzhen Sunway Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Sunway Comm 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 Sunway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Sunway Comm has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Shenzhen Sunway go up and down completely randomly.

Pair Corralation between Shenwu Energy and Shenzhen Sunway

Assuming the 90 days trading horizon Shenwu Energy Saving is expected to under-perform the Shenzhen Sunway. But the stock apears to be less risky and, when comparing its historical volatility, Shenwu Energy Saving is 1.1 times less risky than Shenzhen Sunway. The stock trades about -0.18 of its potential returns per unit of risk. The Shenzhen Sunway Communication is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,489  in Shenzhen Sunway Communication on October 7, 2024 and sell it today you would lose (114.00) from holding Shenzhen Sunway Communication or give up 4.58% of portfolio value over 90 days.

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

Shenwu Energy Saving  vs.  Shenzhen Sunway Communication

Shenwu Energy Saving

Risk-Adjusted Performance

0 of 100

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 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.

Shenzhen Sunway Comm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Sunway Communication 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 Shenzhen Sunway

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

The idea behind Shenwu Energy Saving and Shenzhen Sunway 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.