Correlation Between China Natural and Delta CleanTech

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

By analyzing existing cross correlation between China Natural Resources and Delta CleanTech, you can compare the effects of market volatilities on China Natural and Delta CleanTech 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 Natural with a short position of Delta CleanTech. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Natural and Delta CleanTech.

Diversification Opportunities for China Natural and Delta CleanTech

0.21

Correlation Coefficient

China Natural  Delta CleanTech

Modest diversification

The 3 months correlation between China and Delta is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding China Natural Resources and Delta CleanTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta CleanTech and China Natural 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 Natural Resources are associated (or correlated) with Delta CleanTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta CleanTech has no effect on the direction of China Natural i.e., China Natural and Delta CleanTech go up and down completely randomly.

Pair Corralation between China Natural and Delta CleanTech

Given the investment horizon of 90 days China Natural Resources is expected to generate 0.75 times more return on investment than Delta CleanTech. However, China Natural Resources is 1.34 times less risky than Delta CleanTech. It trades about 0.02 of its potential returns per unit of risk. Delta CleanTech is currently generating about 0.0 per unit of risk. If you would invest  61.00  in China Natural Resources on September 21, 2024 and sell it today you would lose (5.00) from holding China Natural Resources or give up 8.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Natural Resources  vs.  Delta CleanTech

China Natural Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Natural Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, China Natural may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Delta CleanTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Delta CleanTech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Delta CleanTech is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Natural and Delta CleanTech

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

The idea behind China Natural Resources and Delta CleanTech 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.