Correlation Between China Shenhua and Jinhe Biotechnology

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

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

Diversification Opportunities for China Shenhua and Jinhe Biotechnology

0.45

Correlation Coefficient

China Shenhua  Jinhe Biotechnology

Very weak diversification

The 3 months correlation between China and Jinhe is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and Jinhe Biotechnology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinhe Biotechnology and China Shenhua 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 China Shenhua Energy are associated (or correlated) with Jinhe Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinhe Biotechnology has no effect on the direction of China Shenhua i.e., China Shenhua and Jinhe Biotechnology go up and down completely randomly.

Pair Corralation between China Shenhua and Jinhe Biotechnology

Assuming the 90 days trading horizon China Shenhua Energy is expected to under-perform the Jinhe Biotechnology. But the stock apears to be less risky and, when comparing its historical volatility, China Shenhua Energy is 1.64 times less risky than Jinhe Biotechnology. The stock trades about -0.06 of its potential returns per unit of risk. The Jinhe Biotechnology Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  447.00  in Jinhe Biotechnology Co on October 26, 2024 and sell it today you would lose (14.00) from holding Jinhe Biotechnology Co or give up 3.13% of portfolio value over 90 days.

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

China Shenhua Energy  vs.  Jinhe Biotechnology Co

China Shenhua Energy

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, China Shenhua is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jinhe Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Shenhua and Jinhe Biotechnology

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

The idea behind China Shenhua Energy and Jinhe Biotechnology Co 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.