Correlation Between China Shenhua and TerraCom

Can any of the company-specific risk be diversified away by investing in both China Shenhua and TerraCom 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 TerraCom 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 TerraCom Limited, you can compare the effects of market volatilities on China Shenhua and TerraCom 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 TerraCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Shenhua and TerraCom.

Diversification Opportunities for China Shenhua and TerraCom

0.47

Correlation Coefficient

China Shenhua  TerraCom

Very weak diversification

The 3 months correlation between China and TerraCom is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and TerraCom Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TerraCom Limited 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 TerraCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TerraCom Limited has no effect on the direction of China Shenhua i.e., China Shenhua and TerraCom go up and down completely randomly.

Pair Corralation between China Shenhua and TerraCom

Assuming the 90 days horizon China Shenhua Energy is expected to generate 0.16 times more return on investment than TerraCom. However, China Shenhua Energy is 6.41 times less risky than TerraCom. It trades about -0.01 of its potential returns per unit of risk. TerraCom Limited is currently generating about -0.23 per unit of risk. If you would invest  1,653  in China Shenhua Energy on December 20, 2024 and sell it today you would lose (33.00) from holding China Shenhua Energy or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	13.33%
Values	Daily Returns

China Shenhua Energy  vs.  TerraCom Limited

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.

TerraCom Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days TerraCom Limited 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 fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Shenhua and TerraCom

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

The idea behind China Shenhua Energy and TerraCom Limited 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.