Correlation Between China Shenhua and PICC Property

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

By analyzing existing cross correlation between China Shenhua Energy and PICC Property and, you can compare the effects of market volatilities on China Shenhua and PICC Property 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 China Shenhua with a short position of PICC Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Shenhua and PICC Property.

Diversification Opportunities for China Shenhua and PICC Property

-0.19

Correlation Coefficient

China Shenhua  PICC Property

Good diversification

The 3 months correlation between China and PICC is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and PICC Property and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PICC Property and China Shenhua 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 China Shenhua Energy are associated (or correlated) with PICC Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PICC Property has no effect on the direction of China Shenhua i.e., China Shenhua and PICC Property go up and down completely randomly.

Pair Corralation between China Shenhua and PICC Property

Assuming the 90 days horizon China Shenhua Energy is expected to under-perform the PICC Property. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Shenhua Energy is 1.78 times less risky than PICC Property. The pink sheet trades about -0.01 of its potential returns per unit of risk. The PICC Property and is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,929  in PICC Property and on December 28, 2024 and sell it today you would earn a total of  680.00  from holding PICC Property and or generate 17.31% return on investment over 90 days.

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

China Shenhua Energy  vs.  PICC Property and

China Shenhua Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Shenhua Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, China Shenhua is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PICC Property

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PICC Property and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, PICC Property showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Shenhua and PICC Property

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

The idea behind China Shenhua Energy and PICC Property and 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.