Correlation Between Henan Shenhuo and Guangdong Shenglu

Can any of the company-specific risk be diversified away by investing in both Henan Shenhuo and Guangdong Shenglu 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 Henan Shenhuo and Guangdong Shenglu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Henan Shenhuo Coal and Guangdong Shenglu Telecommunication, you can compare the effects of market volatilities on Henan Shenhuo and Guangdong Shenglu 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 Henan Shenhuo with a short position of Guangdong Shenglu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Henan Shenhuo and Guangdong Shenglu.

Diversification Opportunities for Henan Shenhuo and Guangdong Shenglu

0.32

Correlation Coefficient

Henan Shenhuo  Guangdong Shenglu

Weak diversification

The 3 months correlation between Henan and Guangdong is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu and Henan Shenhuo 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 Henan Shenhuo Coal are associated (or correlated) with Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Guangdong Shenglu

Assuming the 90 days trading horizon Henan Shenhuo Coal is expected to generate 0.85 times more return on investment than Guangdong Shenglu. However, Henan Shenhuo Coal is 1.18 times less risky than Guangdong Shenglu. It trades about 0.04 of its potential returns per unit of risk. Guangdong Shenglu Telecommunication is currently generating about -0.07 per unit of risk. If you would invest  1,588  in Henan Shenhuo Coal on September 29, 2024 and sell it today you would earn a total of  24.00  from holding Henan Shenhuo Coal or generate 1.51% return on investment over 90 days.

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

Henan Shenhuo Coal  vs.  Guangdong Shenglu Telecommunic

Henan Shenhuo Coal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Henan Shenhuo Coal 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Guangdong Shenglu

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Shenglu Telecommunication are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Shenglu may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Henan Shenhuo and Guangdong Shenglu

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

The idea behind Henan Shenhuo Coal and Guangdong Shenglu Telecommunication 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.