Correlation Between Ping An and China Shenhua

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

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

Diversification Opportunities for Ping An and China Shenhua

0.55

Correlation Coefficient

Ping An  China Shenhua

Very weak diversification

The 3 months correlation between Ping and China is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Ping An Insurance 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 Ping An 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 Ping An Insurance 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 Ping An i.e., Ping An and China Shenhua go up and down completely randomly.

Pair Corralation between Ping An and China Shenhua

Assuming the 90 days trading horizon Ping An Insurance is expected to generate 1.44 times more return on investment than China Shenhua. However, Ping An is 1.44 times more volatile than China Shenhua Energy. It trades about 0.13 of its potential returns per unit of risk. China Shenhua Energy is currently generating about -0.01 per unit of risk. If you would invest  4,345  in Ping An Insurance on September 1, 2024 and sell it today you would earn a total of  980.00  from holding Ping An Insurance or generate 22.55% return on investment over 90 days.

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

Ping An Insurance  vs.  China Shenhua Energy

Ping An Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ping An Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ping An sustained solid returns over the last few months and may actually be approaching a breakup point.

China Shenhua Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Shenhua Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Shenhua is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ping An and China Shenhua

The main advantage of trading using opposite Ping An and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ping An 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 Ping An Insurance 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.