Correlation Between Jiangxi Naipu and China Shenhua

Can any of the company-specific risk be diversified away by investing in both Jiangxi Naipu and China Shenhua 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 Jiangxi Naipu and China Shenhua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Jiangxi Naipu Mining and China Shenhua Energy, you can compare the effects of market volatilities on Jiangxi Naipu and China Shenhua 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 Jiangxi Naipu with a short position of China Shenhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangxi Naipu and China Shenhua.

Diversification Opportunities for Jiangxi Naipu and China Shenhua

0.55

Correlation Coefficient

Jiangxi Naipu  China Shenhua

Very weak diversification

The 3 months correlation between Jiangxi and China is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Jiangxi Naipu Mining and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy and Jiangxi Naipu 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 Jiangxi Naipu Mining are associated (or correlated) with China Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of Jiangxi Naipu i.e., Jiangxi Naipu and China Shenhua go up and down completely randomly.

Pair Corralation between Jiangxi Naipu and China Shenhua

Assuming the 90 days trading horizon Jiangxi Naipu Mining is expected to generate 1.7 times more return on investment than China Shenhua. However, Jiangxi Naipu is 1.7 times more volatile than China Shenhua Energy. It trades about 0.16 of its potential returns per unit of risk. China Shenhua Energy is currently generating about 0.11 per unit of risk. If you would invest  2,233  in Jiangxi Naipu Mining on September 14, 2024 and sell it today you would earn a total of  741.00  from holding Jiangxi Naipu Mining or generate 33.18% return on investment over 90 days.

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

Jiangxi Naipu Mining  vs.  China Shenhua Energy

Jiangxi Naipu Mining

Risk-Adjusted Performance

12 of 100

Good

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

China Shenhua Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Shenhua Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Shenhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiangxi Naipu and China Shenhua

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

The idea behind Jiangxi Naipu Mining and China Shenhua Energy 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.