Correlation Between Shanghai Suochen and Shenwu Energy

Can any of the company-specific risk be diversified away by investing in both Shanghai Suochen 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 Suochen 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 Suochen Information and Shenwu Energy Saving, you can compare the effects of market volatilities on Shanghai Suochen 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 Suochen with a short position of Shenwu Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Suochen and Shenwu Energy.

Diversification Opportunities for Shanghai Suochen and Shenwu Energy

-0.36

Correlation Coefficient

Shanghai Suochen  Shenwu Energy

Very good diversification

The 3 months correlation between Shanghai and Shenwu is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Suochen Information 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 Suochen 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 Suochen Information 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 Suochen i.e., Shanghai Suochen and Shenwu Energy go up and down completely randomly.

Pair Corralation between Shanghai Suochen and Shenwu Energy

Assuming the 90 days trading horizon Shanghai Suochen Information is expected to generate 0.89 times more return on investment than Shenwu Energy. However, Shanghai Suochen Information is 1.13 times less risky than Shenwu Energy. It trades about 0.08 of its potential returns per unit of risk. Shenwu Energy Saving is currently generating about -0.09 per unit of risk. If you would invest  7,092  in Shanghai Suochen Information on December 5, 2024 and sell it today you would earn a total of  1,138  from holding Shanghai Suochen Information or generate 16.05% return on investment over 90 days.

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

Shanghai Suochen Information  vs.  Shenwu Energy Saving

Shanghai Suochen Inf

Risk-Adjusted Performance

OK

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

Shenwu Energy Saving

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenwu Energy Saving has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shanghai Suochen and Shenwu Energy

The main advantage of trading using opposite Shanghai Suochen and Shenwu Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Suochen 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 Suochen Information 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.