Correlation Between Shanxi Xishan and Dr Peng

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

By analyzing existing cross correlation between Shanxi Xishan Coal and Dr Peng Telecom, you can compare the effects of market volatilities on Shanxi Xishan and Dr Peng 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 Shanxi Xishan with a short position of Dr Peng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanxi Xishan and Dr Peng.

Diversification Opportunities for Shanxi Xishan and Dr Peng

-0.09

Correlation Coefficient

Shanxi Xishan  Dr Peng

Good diversification

The 3 months correlation between Shanxi and 600804 is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Shanxi Xishan Coal and Dr Peng Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dr Peng Telecom and Shanxi Xishan 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 Shanxi Xishan Coal are associated (or correlated) with Dr Peng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dr Peng Telecom has no effect on the direction of Shanxi Xishan i.e., Shanxi Xishan and Dr Peng go up and down completely randomly.

Pair Corralation between Shanxi Xishan and Dr Peng

Assuming the 90 days trading horizon Shanxi Xishan is expected to generate 2.54 times less return on investment than Dr Peng. But when comparing it to its historical volatility, Shanxi Xishan Coal is 1.54 times less risky than Dr Peng. It trades about 0.1 of its potential returns per unit of risk. Dr Peng Telecom is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  154.00  in Dr Peng Telecom on September 15, 2024 and sell it today you would earn a total of  59.00  from holding Dr Peng Telecom or generate 38.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Shanxi Xishan Coal  vs.  Dr Peng Telecom

Shanxi Xishan Coal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanxi Xishan Coal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanxi Xishan sustained solid returns over the last few months and may actually be approaching a breakup point.

Dr Peng Telecom

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dr Peng Telecom are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dr Peng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanxi Xishan and Dr Peng

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

The idea behind Shanxi Xishan Coal and Dr Peng Telecom 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.