Correlation Between Shenwu Energy and Jiangsu GDK

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

Diversification Opportunities for Shenwu Energy and Jiangsu GDK

0.67

Correlation Coefficient

Shenwu Energy  Jiangsu GDK

Poor diversification

The 3 months correlation between Shenwu and Jiangsu is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shenwu Energy Saving and Jiangsu GDK Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu GDK Biotechnology 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 Jiangsu GDK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu GDK Biotechnology has no effect on the direction of Shenwu Energy i.e., Shenwu Energy and Jiangsu GDK go up and down completely randomly.

Pair Corralation between Shenwu Energy and Jiangsu GDK

Assuming the 90 days trading horizon Shenwu Energy Saving is expected to generate 1.04 times more return on investment than Jiangsu GDK. However, Shenwu Energy is 1.04 times more volatile than Jiangsu GDK Biotechnology. It trades about -0.01 of its potential returns per unit of risk. Jiangsu GDK Biotechnology is currently generating about -0.1 per unit of risk. If you would invest  335.00  in Shenwu Energy Saving on October 7, 2024 and sell it today you would lose (26.00) from holding Shenwu Energy Saving or give up 7.76% of portfolio value over 90 days.

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

Shenwu Energy Saving  vs.  Jiangsu GDK Biotechnology

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.

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jiangsu GDK Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shenwu Energy and Jiangsu GDK

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

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