Correlation Between China Resources and Naturgy Energy

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

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

Diversification Opportunities for China Resources and Naturgy Energy

-0.53

Correlation Coefficient

China Resources  Naturgy Energy

Excellent diversification

The 3 months correlation between China and Naturgy is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Gas and Naturgy Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naturgy Energy Group and China Resources 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 Resources Gas are associated (or correlated) with Naturgy Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naturgy Energy Group has no effect on the direction of China Resources i.e., China Resources and Naturgy Energy go up and down completely randomly.

Pair Corralation between China Resources and Naturgy Energy

Assuming the 90 days trading horizon China Resources Gas is expected to under-perform the Naturgy Energy. In addition to that, China Resources is 1.26 times more volatile than Naturgy Energy Group. It trades about -0.08 of its total potential returns per unit of risk. Naturgy Energy Group is currently generating about 0.14 per unit of volatility. If you would invest  2,250  in Naturgy Energy Group on December 20, 2024 and sell it today you would earn a total of  278.00  from holding Naturgy Energy Group or generate 12.36% return on investment over 90 days.

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

China Resources Gas  vs.  Naturgy Energy Group

China Resources Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Resources Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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.

Naturgy Energy Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naturgy Energy Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Naturgy Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and Naturgy Energy

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

The idea behind China Resources Gas and Naturgy Energy Group 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.