Correlation Between Shanghai and Guanghui Energy

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

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

Diversification Opportunities for Shanghai and Guanghui Energy

-0.24

Correlation Coefficient

Shanghai  Guanghui Energy

Very good diversification

The 3 months correlation between Shanghai and Guanghui is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai SK Automation and Guanghui Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guanghui Energy and Shanghai 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 Shanghai SK Automation are associated (or correlated) with Guanghui Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guanghui Energy has no effect on the direction of Shanghai i.e., Shanghai and Guanghui Energy go up and down completely randomly.

Pair Corralation between Shanghai and Guanghui Energy

Assuming the 90 days trading horizon Shanghai SK Automation is expected to generate 2.55 times more return on investment than Guanghui Energy. However, Shanghai is 2.55 times more volatile than Guanghui Energy Co. It trades about 0.08 of its potential returns per unit of risk. Guanghui Energy Co is currently generating about -0.08 per unit of risk. If you would invest  3,971  in Shanghai SK Automation on December 28, 2024 and sell it today you would earn a total of  526.00  from holding Shanghai SK Automation or generate 13.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Shanghai SK Automation  vs.  Guanghui Energy Co

Shanghai SK Automation

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai SK Automation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai sustained solid returns over the last few months and may actually be approaching a breakup point.

Guanghui Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guanghui Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Shanghai and Guanghui Energy

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

The idea behind Shanghai SK Automation and Guanghui Energy 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.