Correlation Between Henan Shenhuo and Fuzhou Rockchip

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

Diversification Opportunities for Henan Shenhuo and Fuzhou Rockchip

HenanFuzhouDiversified AwayHenanFuzhouDiversified Away100%
-0.31
  Correlation Coefficient

Very good diversification

The 3 months correlation between Henan and Fuzhou is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Fuzhou Rockchip Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuzhou Rockchip Elec 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 Fuzhou Rockchip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuzhou Rockchip Elec has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Fuzhou Rockchip go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Fuzhou Rockchip

Assuming the 90 days trading horizon Henan Shenhuo Coal is expected to under-perform the Fuzhou Rockchip. But the stock apears to be less risky and, when comparing its historical volatility, Henan Shenhuo Coal is 1.62 times less risky than Fuzhou Rockchip. The stock trades about -0.05 of its potential returns per unit of risk. The Fuzhou Rockchip Electronics is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  7,148  in Fuzhou Rockchip Electronics on October 6, 2024 and sell it today you would earn a total of  2,801  from holding Fuzhou Rockchip Electronics or generate 39.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Henan Shenhuo Coal  vs.  Fuzhou Rockchip Electronics

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 020406080100
JavaScript chart by amCharts 3.21.15000933 603893
       Timeline  
Henan Shenhuo Coal 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan1617181920
Fuzhou Rockchip Elec 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Fuzhou Rockchip Electronics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fuzhou Rockchip sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan708090100110120

Henan Shenhuo and Fuzhou Rockchip Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.61-7.19-4.78-2.370.02.364.87.249.6812.12 0.0150.0200.0250.0300.0350.040
JavaScript chart by amCharts 3.21.15000933 603893
       Returns  

Pair Trading with Henan Shenhuo and Fuzhou Rockchip

The main advantage of trading using opposite Henan Shenhuo and Fuzhou Rockchip positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Henan Shenhuo position performs unexpectedly, Fuzhou Rockchip 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 Fuzhou Rockchip will offset losses from the drop in Fuzhou Rockchip's long position.
The idea behind Henan Shenhuo Coal and Fuzhou Rockchip 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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