Correlation Between Tongxing Environmental and Shenyang Huitian

Can any of the company-specific risk be diversified away by investing in both Tongxing Environmental and Shenyang Huitian 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 Tongxing Environmental and Shenyang Huitian into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tongxing Environmental Protection and Shenyang Huitian Thermal, you can compare the effects of market volatilities on Tongxing Environmental and Shenyang Huitian 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 Tongxing Environmental with a short position of Shenyang Huitian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tongxing Environmental and Shenyang Huitian.

Diversification Opportunities for Tongxing Environmental and Shenyang Huitian

0.58

Correlation Coefficient

Tongxing Environmental  Shenyang Huitian

Very weak diversification

The 3 months correlation between Tongxing and Shenyang is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Tongxing Environmental Protect and Shenyang Huitian Thermal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenyang Huitian Thermal and Tongxing Environmental 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 Tongxing Environmental Protection are associated (or correlated) with Shenyang Huitian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenyang Huitian Thermal has no effect on the direction of Tongxing Environmental i.e., Tongxing Environmental and Shenyang Huitian go up and down completely randomly.

Pair Corralation between Tongxing Environmental and Shenyang Huitian

Assuming the 90 days trading horizon Tongxing Environmental Protection is expected to generate 0.88 times more return on investment than Shenyang Huitian. However, Tongxing Environmental Protection is 1.14 times less risky than Shenyang Huitian. It trades about -0.08 of its potential returns per unit of risk. Shenyang Huitian Thermal is currently generating about -0.08 per unit of risk. If you would invest  1,631  in Tongxing Environmental Protection on October 4, 2024 and sell it today you would lose (128.00) from holding Tongxing Environmental Protection or give up 7.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Tongxing Environmental Protect  vs.  Shenyang Huitian Thermal

Tongxing Environmental

Risk-Adjusted Performance

2 of 100

Weak

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

Shenyang Huitian Thermal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Huitian Thermal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Huitian may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tongxing Environmental and Shenyang Huitian

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

The idea behind Tongxing Environmental Protection and Shenyang Huitian Thermal 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 Anywhere module to track or share privately all of your investments from the convenience of any device.