Correlation Between China Shenhua and Itochu Corp

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

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

Diversification Opportunities for China Shenhua and Itochu Corp

0.09

Correlation Coefficient

China Shenhua  Itochu Corp

Significant diversification

The 3 months correlation between China and Itochu is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and Itochu Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itochu Corp ADR and China Shenhua 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 China Shenhua Energy are associated (or correlated) with Itochu Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itochu Corp ADR has no effect on the direction of China Shenhua i.e., China Shenhua and Itochu Corp go up and down completely randomly.

Pair Corralation between China Shenhua and Itochu Corp

Assuming the 90 days horizon China Shenhua Energy is expected to generate 0.09 times more return on investment than Itochu Corp. However, China Shenhua Energy is 10.87 times less risky than Itochu Corp. It trades about 0.19 of its potential returns per unit of risk. Itochu Corp ADR is currently generating about -0.11 per unit of risk. If you would invest  470.00  in China Shenhua Energy on October 8, 2025 and sell it today you would earn a total of  60.00  from holding China Shenhua Energy or generate 12.77% return on investment over 90 days.

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

China Shenhua Energy  vs.  Itochu Corp ADR

China Shenhua Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Shenhua Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, China Shenhua reported solid returns over the last few months and may actually be approaching a breakup point.

Itochu Corp ADR

Risk-Adjusted Performance

Weakest

Over the last 90 days Itochu Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2026. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Shenhua and Itochu Corp

The main advantage of trading using opposite China Shenhua and Itochu Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Shenhua position performs unexpectedly, Itochu Corp 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 Itochu Corp will offset losses from the drop in Itochu Corp's long position.

The idea behind China Shenhua Energy and Itochu Corp ADR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.