Correlation Between Henan Shenhuo and Dongguan Tarry

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

Diversification Opportunities for Henan Shenhuo and Dongguan Tarry

0.52

Correlation Coefficient

Henan Shenhuo  Dongguan Tarry

Very weak diversification

The 3 months correlation between Henan and Dongguan is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Dongguan Tarry Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongguan Tarry Elect 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 Dongguan Tarry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongguan Tarry Elect has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Dongguan Tarry go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Dongguan Tarry

Assuming the 90 days trading horizon Henan Shenhuo is expected to generate 20.01 times less return on investment than Dongguan Tarry. But when comparing it to its historical volatility, Henan Shenhuo Coal is 1.87 times less risky than Dongguan Tarry. It trades about 0.03 of its potential returns per unit of risk. Dongguan Tarry Electronics is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  5,861  in Dongguan Tarry Electronics on September 24, 2024 and sell it today you would earn a total of  1,663  from holding Dongguan Tarry Electronics or generate 28.37% return on investment over 90 days.

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

Henan Shenhuo Coal  vs.  Dongguan Tarry Electronics

Henan Shenhuo Coal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Henan Shenhuo Coal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Henan Shenhuo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dongguan Tarry Elect

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dongguan Tarry Electronics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongguan Tarry sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Henan Shenhuo and Dongguan Tarry

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

The idea behind Henan Shenhuo Coal and Dongguan Tarry Electronics 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.