Correlation Between New HopeLtd and China Shenhua

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

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

Diversification Opportunities for New HopeLtd and China Shenhua

0.43

Correlation Coefficient

New HopeLtd  China Shenhua

Very weak diversification

The 3 months correlation between New and China is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding New Hope 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 New HopeLtd 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 New Hope 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 New HopeLtd i.e., New HopeLtd and China Shenhua go up and down completely randomly.

Pair Corralation between New HopeLtd and China Shenhua

Assuming the 90 days horizon New Hope is expected to generate 1.57 times more return on investment than China Shenhua. However, New HopeLtd is 1.57 times more volatile than China Shenhua Energy. It trades about 0.03 of its potential returns per unit of risk. China Shenhua Energy is currently generating about -0.16 per unit of risk. If you would invest  300.00  in New Hope on October 26, 2024 and sell it today you would earn a total of  3.00  from holding New Hope or generate 1.0% return on investment over 90 days.

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

New Hope  vs.  China Shenhua Energy

New HopeLtd

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Shenhua Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with New HopeLtd and China Shenhua

The main advantage of trading using opposite New HopeLtd and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New HopeLtd 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 New Hope 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.