Correlation Between Nufarm and China Energy
Can any of the company-specific risk be diversified away by investing in both Nufarm and China Energy 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 Nufarm and China Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nufarm Limited and China Energy Engineering, you can compare the effects of market volatilities on Nufarm and China Energy 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 Nufarm with a short position of China Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nufarm and China Energy.
Diversification Opportunities for Nufarm and China Energy
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Nufarm and China is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Nufarm Limited and China Energy Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Energy Engineering and Nufarm 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 Nufarm Limited are associated (or correlated) with China Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Energy Engineering has no effect on the direction of Nufarm i.e., Nufarm and China Energy go up and down completely randomly.
Pair Corralation between Nufarm and China Energy
Assuming the 90 days horizon Nufarm Limited is expected to under-perform the China Energy. But the stock apears to be less risky and, when comparing its historical volatility, Nufarm Limited is 2.18 times less risky than China Energy. The stock trades about -0.03 of its potential returns per unit of risk. The China Energy Engineering is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 7.08 in China Energy Engineering on September 4, 2024 and sell it today you would earn a total of 4.92 from holding China Energy Engineering or generate 69.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.74% |
| Values | Daily Returns |
Nufarm Limited vs. China Energy Engineering
Performance |
| Timeline |
| Nufarm Limited |
| China Energy Engineering |
Nufarm and China Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nufarm and China Energy
The main advantage of trading using opposite Nufarm and China Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nufarm position performs unexpectedly, China Energy 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 Energy will offset losses from the drop in China Energy's long position.The idea behind Nufarm Limited and China Energy Engineering 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.| China Energy vs. Larsen Toubro Limited | China Energy vs. China Railway Group | China Energy vs. China Communications Construction | China Energy vs. Superior Plus Corp |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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