Correlation Between Energy and China Natural
Can any of the company-specific risk be diversified away by investing in both Energy and China Natural 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 Energy and China Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy and Water and China Natural Resources, you can compare the effects of market volatilities on Energy and China Natural 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 Energy with a short position of China Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy and China Natural.
Diversification Opportunities for Energy and China Natural
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Energy and China is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and China Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Natural Resources and 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 Energy and Water are associated (or correlated) with China Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Natural Resources has no effect on the direction of Energy i.e., Energy and China Natural go up and down completely randomly.
Pair Corralation between Energy and China Natural
Given the investment horizon of 90 days Energy and Water is expected to generate 3.09 times more return on investment than China Natural. However, Energy is 3.09 times more volatile than China Natural Resources. It trades about 0.16 of its potential returns per unit of risk. China Natural Resources is currently generating about 0.11 per unit of risk. If you would invest 0.35 in Energy and Water on October 20, 2024 and sell it today you would earn a total of 0.10 from holding Energy and Water or generate 28.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy and Water vs. China Natural Resources
Performance |
| Timeline |
| Energy and Water |
| China Natural Resources |
Energy and China Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy and China Natural
The main advantage of trading using opposite Energy and China Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy position performs unexpectedly, China Natural 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 Natural will offset losses from the drop in China Natural's long position.| Energy vs. Vow ASA | Energy vs. Eestech | Energy vs. One World Universe | Energy vs. Bion Environmental Technologies |
| China Natural vs. Seychelle Environmtl | China Natural vs. Vow ASA | China Natural vs. Eestech | China Natural vs. Energy and Water |
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.
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