Correlation Between Shaanxi Energy and Metro Investment

Can any of the company-specific risk be diversified away by investing in both Shaanxi Energy and Metro Investment 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 Metro Investment 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 Metro Investment Development, you can compare the effects of market volatilities on Shaanxi Energy and Metro Investment 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 Metro Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shaanxi Energy and Metro Investment.

Diversification Opportunities for Shaanxi Energy and Metro Investment

0.69

Correlation Coefficient

Shaanxi Energy  Metro Investment

Poor diversification

The 3 months correlation between Shaanxi and Metro is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Energy Investment and Metro Investment Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Investment Dev 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 Metro Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Investment Dev has no effect on the direction of Shaanxi Energy i.e., Shaanxi Energy and Metro Investment go up and down completely randomly.

Pair Corralation between Shaanxi Energy and Metro Investment

Assuming the 90 days trading horizon Shaanxi Energy is expected to generate 10.87 times less return on investment than Metro Investment. But when comparing it to its historical volatility, Shaanxi Energy Investment is 1.99 times less risky than Metro Investment. It trades about 0.03 of its potential returns per unit of risk. Metro Investment Development is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  436.00  in Metro Investment Development on September 5, 2024 and sell it today you would earn a total of  36.00  from holding Metro Investment Development or generate 8.26% return on investment over 90 days.

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

Shaanxi Energy Investment  vs.  Metro Investment Development

Shaanxi Energy Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Energy Investment are ranked lower than 4 (%) 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.

Metro Investment Dev

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Shaanxi Energy and Metro Investment

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

The idea behind Shaanxi Energy Investment and Metro Investment Development 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .