Correlation Between EV Advanced and SH Energy

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

By analyzing existing cross correlation between EV Advanced Material and SH Energy Chemical, you can compare the effects of market volatilities on EV Advanced and SH Energy 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 EV Advanced with a short position of SH Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of EV Advanced and SH Energy.

Diversification Opportunities for EV Advanced and SH Energy

0.08

Correlation Coefficient

EV Advanced  SH Energy

Significant diversification

The 3 months correlation between 131400 and 002360 is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding EV Advanced Material and SH Energy Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SH Energy Chemical and EV Advanced 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 EV Advanced Material are associated (or correlated) with SH Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SH Energy Chemical has no effect on the direction of EV Advanced i.e., EV Advanced and SH Energy go up and down completely randomly.

Pair Corralation between EV Advanced and SH Energy

Assuming the 90 days trading horizon EV Advanced Material is expected to under-perform the SH Energy. In addition to that, EV Advanced is 1.77 times more volatile than SH Energy Chemical. It trades about -0.03 of its total potential returns per unit of risk. SH Energy Chemical is currently generating about -0.04 per unit of volatility. If you would invest  61,900  in SH Energy Chemical on September 4, 2024 and sell it today you would lose (8,500) from holding SH Energy Chemical or give up 13.73% of portfolio value over 90 days.

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

EV Advanced Material  vs.  SH Energy Chemical

EV Advanced Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EV Advanced Material has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SH Energy Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SH Energy Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SH Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with EV Advanced and SH Energy

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

The idea behind EV Advanced Material and SH Energy Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.