Correlation Between Henan Shenhuo and Tibet Huayu

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

Diversification Opportunities for Henan Shenhuo and Tibet Huayu

-0.01

Correlation Coefficient

Henan Shenhuo  Tibet Huayu

Good diversification

The 3 months correlation between Henan and Tibet is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Tibet Huayu Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tibet Huayu Mining 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 Tibet Huayu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tibet Huayu Mining has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Tibet Huayu go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Tibet Huayu

Assuming the 90 days trading horizon Henan Shenhuo Coal is expected to generate 1.23 times more return on investment than Tibet Huayu. However, Henan Shenhuo is 1.23 times more volatile than Tibet Huayu Mining. It trades about 0.07 of its potential returns per unit of risk. Tibet Huayu Mining is currently generating about -0.38 per unit of risk. If you would invest  1,709  in Henan Shenhuo Coal on October 6, 2024 and sell it today you would earn a total of  48.00  from holding Henan Shenhuo Coal or generate 2.81% return on investment over 90 days.

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

Henan Shenhuo Coal  vs.  Tibet Huayu Mining

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.

Tibet Huayu Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tibet Huayu Mining 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 Tibet Huayu

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

The idea behind Henan Shenhuo Coal and Tibet Huayu Mining 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 Transaction History module to view history of all your transactions and understand their impact on performance.