Correlation Between China Shenhua and Pengxin International

Can any of the company-specific risk be diversified away by investing in both China Shenhua and Pengxin International 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 Pengxin International 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 Pengxin International Mining, you can compare the effects of market volatilities on China Shenhua and Pengxin International 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 Pengxin International. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Shenhua and Pengxin International.

Diversification Opportunities for China Shenhua and Pengxin International

0.08

Correlation Coefficient

China Shenhua  Pengxin International

Significant diversification

The 3 months correlation between China and Pengxin is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and Pengxin International Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pengxin International 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 Pengxin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pengxin International has no effect on the direction of China Shenhua i.e., China Shenhua and Pengxin International go up and down completely randomly.

Pair Corralation between China Shenhua and Pengxin International

Assuming the 90 days trading horizon China Shenhua Energy is expected to generate 0.47 times more return on investment than Pengxin International. However, China Shenhua Energy is 2.13 times less risky than Pengxin International. It trades about 0.0 of its potential returns per unit of risk. Pengxin International Mining is currently generating about -0.01 per unit of risk. If you would invest  4,244  in China Shenhua Energy on October 8, 2024 and sell it today you would lose (37.00) from holding China Shenhua Energy or give up 0.87% of portfolio value over 90 days.

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

China Shenhua Energy  vs.  Pengxin International Mining

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.

Pengxin International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pengxin International Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Pengxin International 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 Pengxin International

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

The idea behind China Shenhua Energy and Pengxin International Mining 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.