Correlation Between White Energy and China Shenhua

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

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

Diversification Opportunities for White Energy and China Shenhua

0.07

Correlation Coefficient

White Energy  China Shenhua

Significant diversification

The 3 months correlation between White and China is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding White Energy 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 White 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 White Energy 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 White Energy i.e., White Energy and China Shenhua go up and down completely randomly.

Pair Corralation between White Energy and China Shenhua

Assuming the 90 days horizon White Energy is expected to generate 19.01 times more return on investment than China Shenhua. However, White Energy is 19.01 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 0.11 per unit of risk. If you would invest  3.00  in White Energy on January 25, 2024 and sell it today you would earn a total of  0.53  from holding White Energy or generate 17.67% return on investment over 90 days.

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

White Energy  vs.  China Shenhua Energy

White Energy

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in White Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, White Energy reported solid returns over the last few months and may actually be approaching a breakup point.

China Shenhua Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Shenhua Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, China Shenhua may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with White Energy and China Shenhua

The main advantage of trading using opposite White Energy and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if White Energy 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 White Energy 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.