Correlation Between Beijing HuaYuanYiTong and Henan Shenhuo

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

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

Diversification Opportunities for Beijing HuaYuanYiTong and Henan Shenhuo

-0.18

Correlation Coefficient

Beijing HuaYuanYiTong  Henan Shenhuo

Good diversification

The 3 months correlation between Beijing and Henan is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Beijing HuaYuanYiTong Thermal 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 Beijing HuaYuanYiTong 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 Beijing HuaYuanYiTong Thermal 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 Beijing HuaYuanYiTong i.e., Beijing HuaYuanYiTong and Henan Shenhuo go up and down completely randomly.

Pair Corralation between Beijing HuaYuanYiTong and Henan Shenhuo

Assuming the 90 days trading horizon Beijing HuaYuanYiTong Thermal is expected to under-perform the Henan Shenhuo. But the stock apears to be less risky and, when comparing its historical volatility, Beijing HuaYuanYiTong Thermal is 1.23 times less risky than Henan Shenhuo. The stock trades about -0.49 of its potential returns per unit of risk. The Henan Shenhuo Coal is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,685  in Henan Shenhuo Coal on October 5, 2024 and sell it today you would lose (1.00) from holding Henan Shenhuo Coal or give up 0.06% of portfolio value over 90 days.

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

Beijing HuaYuanYiTong Thermal  vs.  Henan Shenhuo Coal

Beijing HuaYuanYiTong

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing HuaYuanYiTong Thermal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beijing HuaYuanYiTong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Beijing HuaYuanYiTong and Henan Shenhuo

The main advantage of trading using opposite Beijing HuaYuanYiTong and Henan Shenhuo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing HuaYuanYiTong 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 Beijing HuaYuanYiTong Thermal 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.