Correlation Between Shanghai CEO and Shenwu Energy

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

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

Diversification Opportunities for Shanghai CEO and Shenwu Energy

0.89

Correlation Coefficient

Shanghai CEO  Shenwu Energy

Very poor diversification

The 3 months correlation between Shanghai and Shenwu is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai CEO Environmental and Shenwu Energy Saving in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenwu Energy Saving and Shanghai CEO 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 CEO Environmental are associated (or correlated) with Shenwu Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenwu Energy Saving has no effect on the direction of Shanghai CEO i.e., Shanghai CEO and Shenwu Energy go up and down completely randomly.

Pair Corralation between Shanghai CEO and Shenwu Energy

Assuming the 90 days trading horizon Shanghai CEO is expected to generate 1.62 times less return on investment than Shenwu Energy. But when comparing it to its historical volatility, Shanghai CEO Environmental is 1.24 times less risky than Shenwu Energy. It trades about 0.19 of its potential returns per unit of risk. Shenwu Energy Saving is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  248.00  in Shenwu Energy Saving on September 16, 2024 and sell it today you would earn a total of  174.00  from holding Shenwu Energy Saving or generate 70.16% return on investment over 90 days.

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

Shanghai CEO Environmental  vs.  Shenwu Energy Saving

Shanghai CEO Environ

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai CEO Environmental are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai CEO sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenwu Energy Saving

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenwu Energy Saving are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenwu Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai CEO and Shenwu Energy

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

The idea behind Shanghai CEO Environmental and Shenwu Energy Saving 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.