Correlation Between China Shenhua and Whitehaven Coal

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

Diversification Opportunities for China Shenhua and Whitehaven Coal

0.56

Correlation Coefficient

China Shenhua  Whitehaven Coal

Very weak diversification

The 3 months correlation between China and Whitehaven is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and Whitehaven Coal Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitehaven Coal 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 Whitehaven Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitehaven Coal has no effect on the direction of China Shenhua i.e., China Shenhua and Whitehaven Coal go up and down completely randomly.

Pair Corralation between China Shenhua and Whitehaven Coal

Assuming the 90 days horizon China Shenhua Energy is expected to generate 0.96 times more return on investment than Whitehaven Coal. However, China Shenhua Energy is 1.04 times less risky than Whitehaven Coal. It trades about -0.06 of its potential returns per unit of risk. Whitehaven Coal Limited is currently generating about -0.1 per unit of risk. If you would invest  1,706  in China Shenhua Energy on October 25, 2024 and sell it today you would lose (137.00) from holding China Shenhua Energy or give up 8.03% of portfolio value over 90 days.

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

China Shenhua Energy  vs.  Whitehaven Coal Limited

China Shenhua Energy

Risk-Adjusted Performance

0 of 100

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 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.

Whitehaven Coal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Whitehaven Coal Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Shenhua and Whitehaven Coal

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

The idea behind China Shenhua Energy and Whitehaven Coal 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .