Correlation Between Whitehaven Coal and China Shenhua

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

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

Diversification Opportunities for Whitehaven Coal and China Shenhua

-0.76

Correlation Coefficient

Whitehaven Coal  China Shenhua

Pay attention - limited upside

The 3 months correlation between Whitehaven and China is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Whitehaven Coal Limited 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 Whitehaven Coal 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 Whitehaven Coal Limited 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 Whitehaven Coal i.e., Whitehaven Coal and China Shenhua go up and down completely randomly.

Pair Corralation between Whitehaven Coal and China Shenhua

Assuming the 90 days horizon Whitehaven Coal Limited is expected to under-perform the China Shenhua. In addition to that, Whitehaven Coal is 2.06 times more volatile than China Shenhua Energy. It trades about -0.11 of its total potential returns per unit of risk. China Shenhua Energy is currently generating about 0.13 per unit of volatility. If you would invest  420.00  in China Shenhua Energy on October 26, 2024 and sell it today you would earn a total of  35.00  from holding China Shenhua Energy or generate 8.33% return on investment over 90 days.

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

Whitehaven Coal Limited  vs.  China Shenhua Energy

Whitehaven Coal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Whitehaven Coal Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 Whitehaven Coal and China Shenhua

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