Correlation Between Alliance Resource and China Shenhua

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

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

Diversification Opportunities for Alliance Resource and China Shenhua

0.21

Correlation Coefficient

Alliance Resource  China Shenhua

Modest diversification

The 3 months correlation between Alliance and China is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Resource Partners 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 Alliance Resource 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 Alliance Resource Partners 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 Alliance Resource i.e., Alliance Resource and China Shenhua go up and down completely randomly.

Pair Corralation between Alliance Resource and China Shenhua

Given the investment horizon of 90 days Alliance Resource Partners is expected to generate 0.47 times more return on investment than China Shenhua. However, Alliance Resource Partners is 2.15 times less risky than China Shenhua. It trades about 0.28 of its potential returns per unit of risk. China Shenhua Energy is currently generating about 0.02 per unit of risk. If you would invest  2,271  in Alliance Resource Partners on September 3, 2024 and sell it today you would earn a total of  552.00  from holding Alliance Resource Partners or generate 24.31% return on investment over 90 days.

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

Alliance Resource Partners  vs.  China Shenhua Energy

Alliance Resource

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Resource Partners are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain essential indicators, Alliance Resource reported solid returns over the last few months and may actually be approaching a breakup point.

China Shenhua Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Shenhua Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly 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 Alliance Resource and China Shenhua

The main advantage of trading using opposite Alliance Resource and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Resource 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 Alliance Resource Partners 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.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.