Correlation Between Shenwu Energy and Sichuan Furong

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

Diversification Opportunities for Shenwu Energy and Sichuan Furong

0.7

Correlation Coefficient

Shenwu Energy  Sichuan Furong

Poor diversification

The 3 months correlation between Shenwu and Sichuan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Sichuan Furong Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Furong Technology 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 Sichuan Furong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Furong Technology has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Sichuan Furong go up and down completely randomly.

Pair Corralation between Shenwu Energy and Sichuan Furong

Assuming the 90 days trading horizon Shenwu Energy Saving is expected to generate 2.63 times more return on investment than Sichuan Furong. However, Shenwu Energy is 2.63 times more volatile than Sichuan Furong Technology. It trades about 0.09 of its potential returns per unit of risk. Sichuan Furong Technology is currently generating about -0.07 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	Significant
Accuracy	100.0%
Values	Daily Returns

Shenwu Energy Saving  vs.  Sichuan Furong Technology

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.

Sichuan Furong Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sichuan Furong Technology 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 Sichuan Furong

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

The idea behind Shenwu Energy Saving and Sichuan Furong Technology 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.