Correlation Between Guangdong Shenglu and Henan Shenhuo

Can any of the company-specific risk be diversified away by investing in both Guangdong Shenglu and Henan Shenhuo 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 Guangdong Shenglu and Henan Shenhuo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Shenglu Telecommunication and Henan Shenhuo Coal, you can compare the effects of market volatilities on Guangdong Shenglu and Henan Shenhuo 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 Guangdong Shenglu with a short position of Henan Shenhuo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Shenglu and Henan Shenhuo.

Diversification Opportunities for Guangdong Shenglu and Henan Shenhuo

0.21

Correlation Coefficient

Guangdong Shenglu  Henan Shenhuo

Modest diversification

The 3 months correlation between Guangdong and Henan is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Shenglu Telecommunic and Henan Shenhuo Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shenhuo Coal and Guangdong Shenglu 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 Guangdong Shenglu Telecommunication are associated (or correlated) with Henan Shenhuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shenhuo Coal has no effect on the direction of Guangdong Shenglu i.e., Guangdong Shenglu and Henan Shenhuo go up and down completely randomly.

Pair Corralation between Guangdong Shenglu and Henan Shenhuo

Assuming the 90 days trading horizon Guangdong Shenglu Telecommunication is expected to generate 1.0 times more return on investment than Henan Shenhuo. However, Guangdong Shenglu is 1.0 times more volatile than Henan Shenhuo Coal. It trades about 0.07 of its potential returns per unit of risk. Henan Shenhuo Coal is currently generating about -0.05 per unit of risk. If you would invest  559.00  in Guangdong Shenglu Telecommunication on September 30, 2024 and sell it today you would earn a total of  133.00  from holding Guangdong Shenglu Telecommunication or generate 23.79% return on investment over 90 days.

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

Guangdong Shenglu Telecommunic  vs.  Henan Shenhuo Coal

Guangdong Shenglu

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Shenglu Telecommunication are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Shenglu may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 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.

Pair Trading with Guangdong Shenglu and Henan Shenhuo

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

The idea behind Guangdong Shenglu Telecommunication and Henan Shenhuo Coal 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.