Correlation Between Shaanxi Energy and Zhongrun Resources

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

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

Diversification Opportunities for Shaanxi Energy and Zhongrun Resources

0.06

Correlation Coefficient

Shaanxi Energy  Zhongrun Resources

Significant diversification

The 3 months correlation between Shaanxi and Zhongrun is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Energy Investment and Zhongrun Resources Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongrun Resources and Shaanxi Energy 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 Shaanxi Energy Investment are associated (or correlated) with Zhongrun Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongrun Resources has no effect on the direction of Shaanxi Energy i.e., Shaanxi Energy and Zhongrun Resources go up and down completely randomly.

Pair Corralation between Shaanxi Energy and Zhongrun Resources

Assuming the 90 days trading horizon Shaanxi Energy is expected to generate 12.27 times less return on investment than Zhongrun Resources. But when comparing it to its historical volatility, Shaanxi Energy Investment is 1.89 times less risky than Zhongrun Resources. It trades about 0.06 of its potential returns per unit of risk. Zhongrun Resources Investment is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  131.00  in Zhongrun Resources Investment on September 19, 2024 and sell it today you would earn a total of  183.00  from holding Zhongrun Resources Investment or generate 139.69% return on investment over 90 days.

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

Shaanxi Energy Investment  vs.  Zhongrun Resources Investment

Shaanxi Energy Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Energy Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Zhongrun Resources

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongrun Resources Investment are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongrun Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shaanxi Energy and Zhongrun Resources

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

The idea behind Shaanxi Energy Investment and Zhongrun Resources Investment 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.