Correlation Between China Coal and CHINA SHENHUA

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

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

Diversification Opportunities for China Coal and CHINA SHENHUA

0.77

Correlation Coefficient

China Coal  CHINA SHENHUA

Poor diversification

The 3 months correlation between China and CHINA is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Coal Energy and CHINA SHENHUA ENA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SHENHUA ENA and China Coal 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 Coal Energy are associated (or correlated) with CHINA SHENHUA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SHENHUA ENA has no effect on the direction of China Coal i.e., China Coal and CHINA SHENHUA go up and down completely randomly.

Pair Corralation between China Coal and CHINA SHENHUA

Assuming the 90 days horizon China Coal Energy is expected to under-perform the CHINA SHENHUA. In addition to that, China Coal is 1.21 times more volatile than CHINA SHENHUA ENA. It trades about -0.11 of its total potential returns per unit of risk. CHINA SHENHUA ENA is currently generating about 0.03 per unit of volatility. If you would invest  1,550  in CHINA SHENHUA ENA on September 23, 2024 and sell it today you would earn a total of  10.00  from holding CHINA SHENHUA ENA or generate 0.65% return on investment over 90 days.

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

China Coal Energy  vs.  CHINA SHENHUA ENA

China Coal Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Coal Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CHINA SHENHUA ENA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SHENHUA ENA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, CHINA SHENHUA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Coal and CHINA SHENHUA

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

The idea behind China Coal Energy and CHINA SHENHUA ENA 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.