Correlation Between Zhengzhou Coal and Beijing Shunxin

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

By analyzing existing cross correlation between Zhengzhou Coal Mining and Beijing Shunxin Agriculture, you can compare the effects of market volatilities on Zhengzhou Coal and Beijing Shunxin 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 Zhengzhou Coal with a short position of Beijing Shunxin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhengzhou Coal and Beijing Shunxin.

Diversification Opportunities for Zhengzhou Coal and Beijing Shunxin

0.52

Correlation Coefficient

Zhengzhou Coal  Beijing Shunxin

Very weak diversification

The 3 months correlation between Zhengzhou and Beijing is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Zhengzhou Coal Mining and Beijing Shunxin Agriculture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Shunxin Agri and Zhengzhou Coal 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 Zhengzhou Coal Mining are associated (or correlated) with Beijing Shunxin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Shunxin Agri has no effect on the direction of Zhengzhou Coal i.e., Zhengzhou Coal and Beijing Shunxin go up and down completely randomly.

Pair Corralation between Zhengzhou Coal and Beijing Shunxin

Assuming the 90 days trading horizon Zhengzhou Coal Mining is expected to generate 0.4 times more return on investment than Beijing Shunxin. However, Zhengzhou Coal Mining is 2.51 times less risky than Beijing Shunxin. It trades about -0.09 of its potential returns per unit of risk. Beijing Shunxin Agriculture is currently generating about -0.26 per unit of risk. If you would invest  1,307  in Zhengzhou Coal Mining on October 11, 2024 and sell it today you would lose (24.00) from holding Zhengzhou Coal Mining or give up 1.84% of portfolio value over 90 days.

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

Zhengzhou Coal Mining  vs.  Beijing Shunxin Agriculture

Zhengzhou Coal Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Beijing Shunxin Agri

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Zhengzhou Coal and Beijing Shunxin

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

The idea behind Zhengzhou Coal Mining and Beijing Shunxin Agriculture 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..