Correlation Between Henan Shenhuo and Sinosteel Luonai

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

Diversification Opportunities for Henan Shenhuo and Sinosteel Luonai

0.28
  Correlation Coefficient

Modest diversification

The 3 months correlation between Henan and Sinosteel is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Henan Shenhuo Coal and Sinosteel Luonai Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinosteel Luonai Mat 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 Sinosteel Luonai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinosteel Luonai Mat has no effect on the direction of Henan Shenhuo i.e., Henan Shenhuo and Sinosteel Luonai go up and down completely randomly.

Pair Corralation between Henan Shenhuo and Sinosteel Luonai

Assuming the 90 days trading horizon Henan Shenhuo Coal is expected to under-perform the Sinosteel Luonai. But the stock apears to be less risky and, when comparing its historical volatility, Henan Shenhuo Coal is 1.23 times less risky than Sinosteel Luonai. The stock trades about -0.12 of its potential returns per unit of risk. The Sinosteel Luonai Materials is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  391.00  in Sinosteel Luonai Materials on September 30, 2024 and sell it today you would earn a total of  14.00  from holding Sinosteel Luonai Materials or generate 3.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Henan Shenhuo Coal  vs.  Sinosteel Luonai Materials

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 01020304050
JavaScript chart by amCharts 3.21.15000933 688119
       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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec16171819202122
Sinosteel Luonai Mat 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Sinosteel Luonai Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinosteel Luonai may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec3.63.844.24.44.6

Henan Shenhuo and Sinosteel Luonai Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-10.15-7.6-5.05-2.50.04252.565.177.7810.39 0.0200.0250.0300.035
JavaScript chart by amCharts 3.21.15000933 688119
       Returns  

Pair Trading with Henan Shenhuo and Sinosteel Luonai

The main advantage of trading using opposite Henan Shenhuo and Sinosteel Luonai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Henan Shenhuo position performs unexpectedly, Sinosteel Luonai 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 Sinosteel Luonai will offset losses from the drop in Sinosteel Luonai's long position.
The idea behind Henan Shenhuo Coal and Sinosteel Luonai Materials 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.
Check out your portfolio center.
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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