Correlation Between Liaoning Dingjide and Henan Shenhuo

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

By analyzing existing cross correlation between Liaoning Dingjide Petrochemical and Henan Shenhuo Coal, you can compare the effects of market volatilities on Liaoning Dingjide and Henan Shenhuo 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 Liaoning Dingjide with a short position of Henan Shenhuo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Dingjide and Henan Shenhuo.

Diversification Opportunities for Liaoning Dingjide and Henan Shenhuo

0.11

Correlation Coefficient

Liaoning Dingjide  Henan Shenhuo

Average diversification

The 3 months correlation between Liaoning and Henan is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Dingjide Petrochemica and Henan Shenhuo Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shenhuo Coal and Liaoning Dingjide 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 Liaoning Dingjide Petrochemical are associated (or correlated) with Henan Shenhuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shenhuo Coal has no effect on the direction of Liaoning Dingjide i.e., Liaoning Dingjide and Henan Shenhuo go up and down completely randomly.

Pair Corralation between Liaoning Dingjide and Henan Shenhuo

Assuming the 90 days trading horizon Liaoning Dingjide Petrochemical is expected to under-perform the Henan Shenhuo. But the stock apears to be less risky and, when comparing its historical volatility, Liaoning Dingjide Petrochemical is 1.1 times less risky than Henan Shenhuo. The stock trades about -0.01 of its potential returns per unit of risk. The Henan Shenhuo Coal is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,676  in Henan Shenhuo Coal on September 26, 2024 and sell it today you would lose (62.00) from holding Henan Shenhuo Coal or give up 3.7% of portfolio value over 90 days.

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

Liaoning Dingjide Petrochemica  vs.  Henan Shenhuo Coal

Liaoning Dingjide

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide sustained solid returns over the last few months and may actually be approaching a breakup point.

Henan Shenhuo Coal

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Liaoning Dingjide and Henan Shenhuo

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

The idea behind Liaoning Dingjide Petrochemical and Henan Shenhuo Coal 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.