Correlation Between System and SH Energy

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

By analyzing existing cross correlation between System and Application and SH Energy Chemical, you can compare the effects of market volatilities on System and SH Energy 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 System with a short position of SH Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of System and SH Energy.

Diversification Opportunities for System and SH Energy

-0.01

Correlation Coefficient

System  SH Energy

Good diversification

The 3 months correlation between System and 002360 is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding System and Application and SH Energy Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SH Energy Chemical and System 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 System and Application are associated (or correlated) with SH Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SH Energy Chemical has no effect on the direction of System i.e., System and SH Energy go up and down completely randomly.

Pair Corralation between System and SH Energy

Assuming the 90 days trading horizon System and Application is expected to under-perform the SH Energy. But the stock apears to be less risky and, when comparing its historical volatility, System and Application is 1.5 times less risky than SH Energy. The stock trades about -0.13 of its potential returns per unit of risk. The SH Energy Chemical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  51,800  in SH Energy Chemical on September 5, 2024 and sell it today you would earn a total of  1,600  from holding SH Energy Chemical or generate 3.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

System and Application  vs.  SH Energy Chemical

System and Application

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days System and Application 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.

SH Energy Chemical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SH Energy Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SH Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with System and SH Energy

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

The idea behind System and Application and SH Energy Chemical 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.