Correlation Between CHINA SHENHUA and CONSOL Energy

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

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

Diversification Opportunities for CHINA SHENHUA and CONSOL Energy

0.76

Correlation Coefficient

CHINA SHENHUA  CONSOL Energy

Poor diversification

The 3 months correlation between CHINA and CONSOL is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding CHINA SHENHUA ENA and CONSOL Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CONSOL Energy 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 ENA are associated (or correlated) with CONSOL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CONSOL Energy has no effect on the direction of CHINA SHENHUA i.e., CHINA SHENHUA and CONSOL Energy go up and down completely randomly.

Pair Corralation between CHINA SHENHUA and CONSOL Energy

Assuming the 90 days trading horizon CHINA SHENHUA ENA is expected to generate 0.51 times more return on investment than CONSOL Energy. However, CHINA SHENHUA ENA is 1.96 times less risky than CONSOL Energy. It trades about -0.05 of its potential returns per unit of risk. CONSOL Energy is currently generating about -0.18 per unit of risk. If you would invest  1,590  in CHINA SHENHUA ENA on December 26, 2024 and sell it today you would lose (90.00) from holding CHINA SHENHUA ENA or give up 5.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.8%
Values	Daily Returns

CHINA SHENHUA ENA  vs.  CONSOL Energy

CHINA SHENHUA ENA

Risk-Adjusted Performance

Very Weak

Over the last 90 days CHINA SHENHUA ENA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, CHINA SHENHUA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CONSOL Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days CONSOL 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 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 CONSOL Energy

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

The idea behind CHINA SHENHUA ENA and CONSOL Energy 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.