Correlation Between Shaanxi Energy and Harbin Hatou

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

Diversification Opportunities for Shaanxi Energy and Harbin Hatou

0.54

Correlation Coefficient

Shaanxi Energy  Harbin Hatou

Very weak diversification

The 3 months correlation between Shaanxi and Harbin is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Shaanxi Energy Investment and Harbin Hatou Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harbin Hatou Investment 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 Harbin Hatou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harbin Hatou Investment has no effect on the direction of Shaanxi Energy i.e., Shaanxi Energy and Harbin Hatou go up and down completely randomly.

Pair Corralation between Shaanxi Energy and Harbin Hatou

Assuming the 90 days trading horizon Shaanxi Energy is expected to generate 11.72 times less return on investment than Harbin Hatou. But when comparing it to its historical volatility, Shaanxi Energy Investment is 2.96 times less risky than Harbin Hatou. It trades about 0.03 of its potential returns per unit of risk. Harbin Hatou Investment is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  714.00  in Harbin Hatou Investment on September 5, 2024 and sell it today you would earn a total of  58.00  from holding Harbin Hatou Investment or generate 8.12% return on investment over 90 days.

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

Shaanxi Energy Investment  vs.  Harbin Hatou Investment

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.

Harbin Hatou Investment

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Harbin Hatou Investment are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Harbin Hatou sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shaanxi Energy and Harbin Hatou

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

The idea behind Shaanxi Energy Investment and Harbin Hatou 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.