Correlation Between Lumia and China Shenhua

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

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

Diversification Opportunities for Lumia and China Shenhua

0.7

Correlation Coefficient

Lumia  China Shenhua

Poor diversification

The 3 months correlation between Lumia and China is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy and Lumia 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 Lumia are associated (or correlated) with China Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of Lumia i.e., Lumia and China Shenhua go up and down completely randomly.

Pair Corralation between Lumia and China Shenhua

If you would invest  455.00  in China Shenhua Energy on October 26, 2024 and sell it today you would earn a total of  0.00  from holding China Shenhua Energy or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.71%
Values	Daily Returns

Lumia  vs.  China Shenhua Energy

Lumia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Lumia exhibited solid returns over the last few months and may actually be approaching a breakup point.

China Shenhua Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Shenhua Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, China Shenhua may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lumia and China Shenhua

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

The idea behind Lumia and China Shenhua 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.