Correlation Between Shenwu Energy and Guotai Junan

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

Diversification Opportunities for Shenwu Energy and Guotai Junan

0.62

Correlation Coefficient

Shenwu Energy  Guotai Junan

Poor diversification

The 3 months correlation between Shenwu and Guotai is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Guotai Junan Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guotai Junan Securities 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 Guotai Junan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guotai Junan Securities has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Guotai Junan go up and down completely randomly.

Pair Corralation between Shenwu Energy and Guotai Junan

Assuming the 90 days trading horizon Shenwu Energy is expected to generate 2.86 times less return on investment than Guotai Junan. In addition to that, Shenwu Energy is 2.45 times more volatile than Guotai Junan Securities. It trades about 0.01 of its total potential returns per unit of risk. Guotai Junan Securities is currently generating about 0.05 per unit of volatility. If you would invest  1,439  in Guotai Junan Securities on October 5, 2024 and sell it today you would earn a total of  318.00  from holding Guotai Junan Securities or generate 22.1% return on investment over 90 days.

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

Shenwu Energy Saving  vs.  Guotai Junan Securities

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.

Guotai Junan Securities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guotai Junan Securities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guotai Junan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenwu Energy and Guotai Junan

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

The idea behind Shenwu Energy Saving and Guotai Junan Securities 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.