Correlation Between China Shenhua and Thungela Resources

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

Diversification Opportunities for China Shenhua and Thungela Resources

0.63

Correlation Coefficient

China Shenhua  Thungela Resources

Poor diversification

The 3 months correlation between China and Thungela is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and Thungela Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thungela Resources 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 Thungela Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thungela Resources has no effect on the direction of China Shenhua i.e., China Shenhua and Thungela Resources go up and down completely randomly.

Pair Corralation between China Shenhua and Thungela Resources

Assuming the 90 days horizon China Shenhua Energy is expected to under-perform the Thungela Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Shenhua Energy is 1.27 times less risky than Thungela Resources. The pink sheet trades about -0.13 of its potential returns per unit of risk. The Thungela Resources Limited is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  674.00  in Thungela Resources Limited on December 30, 2024 and sell it today you would lose (89.00) from holding Thungela Resources Limited or give up 13.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	82.26%
Values	Daily Returns

China Shenhua Energy  vs.  Thungela Resources 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. Despite fragile performance in the last few months, the Stock's technical and 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.

Thungela Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thungela Resources 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 basic 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 Thungela Resources

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

The idea behind China Shenhua Energy and Thungela Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.