Correlation Between Shandong Homey and China Shenhua

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

By analyzing existing cross correlation between Shandong Homey Aquatic and China Shenhua Energy, you can compare the effects of market volatilities on Shandong Homey and China Shenhua 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 Shandong Homey with a short position of China Shenhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Homey and China Shenhua.

Diversification Opportunities for Shandong Homey and China Shenhua

0.46

Correlation Coefficient

Shandong Homey  China Shenhua

Very weak diversification

The 3 months correlation between Shandong and China is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Homey Aquatic and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy and Shandong Homey 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 Shandong Homey Aquatic are associated (or correlated) with China Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of Shandong Homey i.e., Shandong Homey and China Shenhua go up and down completely randomly.

Pair Corralation between Shandong Homey and China Shenhua

Assuming the 90 days trading horizon Shandong Homey Aquatic is expected to generate 2.4 times more return on investment than China Shenhua. However, Shandong Homey is 2.4 times more volatile than China Shenhua Energy. It trades about 0.06 of its potential returns per unit of risk. China Shenhua Energy is currently generating about -0.19 per unit of risk. If you would invest  234.00  in Shandong Homey Aquatic on December 25, 2024 and sell it today you would earn a total of  21.00  from holding Shandong Homey Aquatic or generate 8.97% return on investment over 90 days.

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

Shandong Homey Aquatic  vs.  China Shenhua Energy

Shandong Homey Aquatic

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Homey Aquatic are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Homey may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Shenhua Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Shenhua Energy 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shandong Homey and China Shenhua

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

The idea behind Shandong Homey Aquatic and China Shenhua Energy 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.