Correlation Between Shenwu Energy and Sinomach Automobile

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

Diversification Opportunities for Shenwu Energy and Sinomach Automobile

0.83

Correlation Coefficient

Shenwu Energy  Sinomach Automobile

Very poor diversification

The 3 months correlation between Shenwu and Sinomach is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Sinomach Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinomach Automobile 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 Sinomach Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinomach Automobile has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Sinomach Automobile go up and down completely randomly.

Pair Corralation between Shenwu Energy and Sinomach Automobile

Assuming the 90 days trading horizon Shenwu Energy is expected to generate 1.7 times less return on investment than Sinomach Automobile. In addition to that, Shenwu Energy is 1.06 times more volatile than Sinomach Automobile Co. It trades about 0.09 of its total potential returns per unit of risk. Sinomach Automobile Co is currently generating about 0.17 per unit of volatility. If you would invest  664.00  in Sinomach Automobile Co on September 20, 2024 and sell it today you would earn a total of  63.00  from holding Sinomach Automobile Co or generate 9.49% 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.  Sinomach Automobile Co

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.

Sinomach Automobile

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sinomach Automobile Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinomach Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenwu Energy and Sinomach Automobile

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

The idea behind Shenwu Energy Saving and Sinomach Automobile Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.