Correlation Between Henan Shenhuo and YiDong Electronics

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

Diversification Opportunities for Henan Shenhuo and YiDong Electronics

0.56

Correlation Coefficient

Henan Shenhuo  YiDong Electronics

Very weak diversification

The 3 months correlation between Henan and YiDong is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and YiDong Electronics Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YiDong Electronics 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 YiDong Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YiDong Electronics has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and YiDong Electronics go up and down completely randomly.

Pair Corralation between Henan Shenhuo and YiDong Electronics

Assuming the 90 days trading horizon Henan Shenhuo Coal is expected to under-perform the YiDong Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Henan Shenhuo Coal is 1.19 times less risky than YiDong Electronics. The stock trades about -0.06 of its potential returns per unit of risk. The YiDong Electronics Technology is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,614  in YiDong Electronics Technology on September 23, 2024 and sell it today you would earn a total of  544.00  from holding YiDong Electronics Technology or generate 33.71% 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.  YiDong Electronics Technology

Henan Shenhuo Coal

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Henan Shenhuo Coal are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Henan Shenhuo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

YiDong Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in YiDong Electronics Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, YiDong Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Henan Shenhuo and YiDong Electronics

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

The idea behind Henan Shenhuo Coal and YiDong Electronics Technology 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.