Correlation Between Henan Shenhuo and Dongjiang Environmental

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

Diversification Opportunities for Henan Shenhuo and Dongjiang Environmental

0.15

Correlation Coefficient

Henan Shenhuo  Dongjiang Environmental

Average diversification

The 3 months correlation between Henan and Dongjiang is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Dongjiang Environmental Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongjiang Environmental 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 Dongjiang Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongjiang Environmental has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Dongjiang Environmental go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Dongjiang Environmental

Assuming the 90 days trading horizon Henan Shenhuo Coal is expected to under-perform the Dongjiang Environmental. But the stock apears to be less risky and, when comparing its historical volatility, Henan Shenhuo Coal is 1.07 times less risky than Dongjiang Environmental. The stock trades about -0.05 of its potential returns per unit of risk. The Dongjiang Environmental Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  444.00  in Dongjiang Environmental Co on October 7, 2024 and sell it today you would lose (47.00) from holding Dongjiang Environmental Co or give up 10.59% of portfolio value over 90 days.

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

Henan Shenhuo Coal  vs.  Dongjiang Environmental Co

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 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.

Dongjiang Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongjiang Environmental Co 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 Henan Shenhuo and Dongjiang Environmental

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

The idea behind Henan Shenhuo Coal and Dongjiang Environmental 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.