Correlation Between Energy and China Natural

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

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

Diversification Opportunities for Energy and China Natural

0.0

Correlation Coefficient

Energy  China Natural

Pay attention - limited upside

The 3 months correlation between Energy and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and China Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Natural Resources and Energy 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 Energy and Water are associated (or correlated) with China Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Natural Resources has no effect on the direction of Energy i.e., Energy and China Natural go up and down completely randomly.

Pair Corralation between Energy and China Natural

Given the investment horizon of 90 days Energy and Water is expected to under-perform the China Natural. In addition to that, Energy is 1.88 times more volatile than China Natural Resources. It trades about -0.11 of its total potential returns per unit of risk. China Natural Resources is currently generating about 0.01 per unit of volatility. If you would invest  67.00  in China Natural Resources on September 16, 2024 and sell it today you would lose (10.00) from holding China Natural Resources or give up 14.93% of portfolio value over 90 days.

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

Energy and Water  vs.  China Natural Resources

Energy and Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy and Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

China Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, China Natural is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Energy and China Natural

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

The idea behind Energy and Water and China Natural Resources 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.