Correlation Between CHINA SHENHUA and China Coal

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

Diversification Opportunities for CHINA SHENHUA and China Coal

0.15

Correlation Coefficient

CHINA SHENHUA  China Coal

Average diversification

The 3 months correlation between CHINA and China is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding CHINA SHENHUA ENA and China Coal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Coal 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 China Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Coal Energy has no effect on the direction of CHINA SHENHUA i.e., CHINA SHENHUA and China Coal go up and down completely randomly.

Pair Corralation between CHINA SHENHUA and China Coal

Assuming the 90 days trading horizon CHINA SHENHUA ENA is expected to generate 0.84 times more return on investment than China Coal. However, CHINA SHENHUA ENA is 1.2 times less risky than China Coal. It trades about -0.13 of its potential returns per unit of risk. China Coal Energy is currently generating about -0.19 per unit of risk. If you would invest  1,620  in CHINA SHENHUA ENA on October 10, 2024 and sell it today you would lose (60.00) from holding CHINA SHENHUA ENA or give up 3.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

CHINA SHENHUA ENA  vs.  China Coal Energy

CHINA SHENHUA ENA

Risk-Adjusted Performance

0 of 100

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.

China Coal Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Coal Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CHINA SHENHUA and China Coal

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

The idea behind CHINA SHENHUA ENA and China Coal 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..