Correlation Between Delta CleanTech and China Natural

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

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

Diversification Opportunities for Delta CleanTech and China Natural

0.21

Correlation Coefficient

Delta CleanTech  China Natural

Modest diversification

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

Pair Corralation between Delta CleanTech and China Natural

Assuming the 90 days horizon Delta CleanTech is expected to generate 3.05 times more return on investment than China Natural. However, Delta CleanTech is 3.05 times more volatile than China Natural Resources. It trades about 0.08 of its potential returns per unit of risk. China Natural Resources is currently generating about -0.17 per unit of risk. If you would invest  1.41  in Delta CleanTech on September 21, 2024 and sell it today you would earn a total of  0.19  from holding Delta CleanTech or generate 13.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.73%
Values	Daily Returns

Delta CleanTech  vs.  China Natural Resources

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.

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.

Pair Trading with Delta CleanTech and China Natural

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

The idea behind Delta CleanTech and China Natural Resources 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.