Correlation Between Dalian Thermal and Shanxi Tond

Can any of the company-specific risk be diversified away by investing in both Dalian Thermal and Shanxi Tond 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 Shanxi Tond 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 Shanxi Tond Chemical, you can compare the effects of market volatilities on Dalian Thermal and Shanxi Tond 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 Shanxi Tond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dalian Thermal and Shanxi Tond.

Diversification Opportunities for Dalian Thermal and Shanxi Tond

0.79

Correlation Coefficient

Dalian Thermal  Shanxi Tond

Poor diversification

The 3 months correlation between Dalian and Shanxi is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Shanxi Tond Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanxi Tond Chemical 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 Shanxi Tond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanxi Tond Chemical has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Shanxi Tond go up and down completely randomly.

Pair Corralation between Dalian Thermal and Shanxi Tond

Assuming the 90 days trading horizon Dalian Thermal Power is expected to under-perform the Shanxi Tond. In addition to that, Dalian Thermal is 1.11 times more volatile than Shanxi Tond Chemical. It trades about -0.19 of its total potential returns per unit of risk. Shanxi Tond Chemical is currently generating about -0.16 per unit of volatility. If you would invest  550.00  in Shanxi Tond Chemical on September 28, 2024 and sell it today you would lose (58.00) from holding Shanxi Tond Chemical or give up 10.55% of portfolio value over 90 days.

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

Dalian Thermal Power  vs.  Shanxi Tond Chemical

Dalian Thermal Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dalian Thermal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanxi Tond Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanxi Tond Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanxi Tond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dalian Thermal and Shanxi Tond

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

The idea behind Dalian Thermal Power and Shanxi Tond Chemical 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.