Correlation Between Dalian Thermal and Shenzhen Zhenye

Can any of the company-specific risk be diversified away by investing in both Dalian Thermal and Shenzhen Zhenye 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 Dalian Thermal and Shenzhen Zhenye into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dalian Thermal Power and Shenzhen Zhenye Group, you can compare the effects of market volatilities on Dalian Thermal and Shenzhen Zhenye 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 Dalian Thermal with a short position of Shenzhen Zhenye. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dalian Thermal and Shenzhen Zhenye.

Diversification Opportunities for Dalian Thermal and Shenzhen Zhenye

0.85

Correlation Coefficient

Dalian Thermal  Shenzhen Zhenye

Very poor diversification

The 3 months correlation between Dalian and Shenzhen is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Shenzhen Zhenye Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Zhenye Group and Dalian Thermal 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 Dalian Thermal Power are associated (or correlated) with Shenzhen Zhenye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Zhenye Group has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Shenzhen Zhenye go up and down completely randomly.

Pair Corralation between Dalian Thermal and Shenzhen Zhenye

Assuming the 90 days trading horizon Dalian Thermal Power is expected to under-perform the Shenzhen Zhenye. But the stock apears to be less risky and, when comparing its historical volatility, Dalian Thermal Power is 1.03 times less risky than Shenzhen Zhenye. The stock trades about -0.12 of its potential returns per unit of risk. The Shenzhen Zhenye Group is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  884.00  in Shenzhen Zhenye Group on September 29, 2024 and sell it today you would lose (82.00) from holding Shenzhen Zhenye Group or give up 9.28% of portfolio value over 90 days.

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

Dalian Thermal Power  vs.  Shenzhen Zhenye Group

Dalian Thermal Power

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dalian Thermal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shenzhen Zhenye Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhenye Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Zhenye sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dalian Thermal and Shenzhen Zhenye

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

The idea behind Dalian Thermal Power and Shenzhen Zhenye Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.