Correlation Between CHINA SHENHUA and HMS Bergbau

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

Diversification Opportunities for CHINA SHENHUA and HMS Bergbau

-0.49

Correlation Coefficient

CHINA SHENHUA  HMS Bergbau

Very good diversification

The 3 months correlation between CHINA and HMS is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding CHINA SHENHUA ENA and HMS Bergbau AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMS Bergbau AG 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 HMS Bergbau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMS Bergbau AG has no effect on the direction of CHINA SHENHUA i.e., CHINA SHENHUA and HMS Bergbau go up and down completely randomly.

Pair Corralation between CHINA SHENHUA and HMS Bergbau

Assuming the 90 days trading horizon CHINA SHENHUA ENA is expected to under-perform the HMS Bergbau. But the stock apears to be less risky and, when comparing its historical volatility, CHINA SHENHUA ENA is 2.0 times less risky than HMS Bergbau. The stock trades about -0.05 of its potential returns per unit of risk. The HMS Bergbau AG is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,920  in HMS Bergbau AG on December 26, 2024 and sell it today you would earn a total of  460.00  from holding HMS Bergbau AG or generate 15.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CHINA SHENHUA ENA  vs.  HMS Bergbau AG

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.

HMS Bergbau AG

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HMS Bergbau AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HMS Bergbau unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHINA SHENHUA and HMS Bergbau

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

The idea behind CHINA SHENHUA ENA and HMS Bergbau AG 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.