Correlation Between Industrial and Dalian Thermal

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

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

Diversification Opportunities for Industrial and Dalian Thermal

0.42

Correlation Coefficient

Industrial  Dalian Thermal

Very weak diversification

The 3 months correlation between Industrial and Dalian is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Dalian Thermal Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dalian Thermal Power and Industrial 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 Industrial and Commercial are associated (or correlated) with Dalian Thermal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dalian Thermal Power has no effect on the direction of Industrial i.e., Industrial and Dalian Thermal go up and down completely randomly.

Pair Corralation between Industrial and Dalian Thermal

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.33 times more return on investment than Dalian Thermal. However, Industrial and Commercial is 3.08 times less risky than Dalian Thermal. It trades about 0.45 of its potential returns per unit of risk. Dalian Thermal Power is currently generating about -0.11 per unit of risk. If you would invest  607.00  in Industrial and Commercial on September 25, 2024 and sell it today you would earn a total of  71.00  from holding Industrial and Commercial or generate 11.7% return on investment over 90 days.

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

Industrial and Commercial  vs.  Dalian Thermal Power

Industrial and Commercial

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Dalian Thermal Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dalian Thermal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and Dalian Thermal

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

The idea behind Industrial and Commercial and Dalian Thermal Power 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.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.