Correlation Between Henan Shenhuo and Guangzhou Boji

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

Diversification Opportunities for Henan Shenhuo and Guangzhou Boji

0.2

Correlation Coefficient

Henan Shenhuo  Guangzhou Boji

Modest diversification

The 3 months correlation between Henan and Guangzhou is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Guangzhou Boji Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Boji Medical 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 Guangzhou Boji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Boji Medical has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Guangzhou Boji go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Guangzhou Boji

Assuming the 90 days trading horizon Henan Shenhuo is expected to generate 1.19 times less return on investment than Guangzhou Boji. But when comparing it to its historical volatility, Henan Shenhuo Coal is 1.31 times less risky than Guangzhou Boji. It trades about 0.03 of its potential returns per unit of risk. Guangzhou Boji Medical is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  774.00  in Guangzhou Boji Medical on October 3, 2024 and sell it today you would earn a total of  99.00  from holding Guangzhou Boji Medical or generate 12.79% 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.  Guangzhou Boji Medical

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Guangzhou Boji Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Boji Medical 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 Guangzhou Boji

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

The idea behind Henan Shenhuo Coal and Guangzhou Boji Medical 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..