Correlation Between Henan Shenhuo and Konfoong Materials

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

Diversification Opportunities for Henan Shenhuo and Konfoong Materials

0.35

Correlation Coefficient

Henan Shenhuo  Konfoong Materials

Weak diversification

The 3 months correlation between Henan and Konfoong is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Konfoong Materials Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Konfoong Materials 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 Konfoong Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Konfoong Materials has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Konfoong Materials go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Konfoong Materials

Assuming the 90 days trading horizon Henan Shenhuo Coal is expected to generate 0.99 times more return on investment than Konfoong Materials. However, Henan Shenhuo Coal is 1.01 times less risky than Konfoong Materials. It trades about 0.15 of its potential returns per unit of risk. Konfoong Materials International is currently generating about 0.0 per unit of risk. If you would invest  1,629  in Henan Shenhuo Coal on December 25, 2024 and sell it today you would earn a total of  335.00  from holding Henan Shenhuo Coal or generate 20.56% 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.  Konfoong Materials Internation

Henan Shenhuo Coal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Henan Shenhuo Coal are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Henan Shenhuo sustained solid returns over the last few months and may actually be approaching a breakup point.

Konfoong Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Konfoong Materials International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Konfoong Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Henan Shenhuo and Konfoong Materials

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

The idea behind Henan Shenhuo Coal and Konfoong Materials International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.