Correlation Between Guangdong Jingyi and Dalian Thermal

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

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

Diversification Opportunities for Guangdong Jingyi and Dalian Thermal

0.89

Correlation Coefficient

Guangdong Jingyi  Dalian Thermal

Very poor diversification

The 3 months correlation between Guangdong and Dalian is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jingyi Metal 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 Guangdong Jingyi 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 Guangdong Jingyi Metal 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 Guangdong Jingyi i.e., Guangdong Jingyi and Dalian Thermal go up and down completely randomly.

Pair Corralation between Guangdong Jingyi and Dalian Thermal

Assuming the 90 days trading horizon Guangdong Jingyi is expected to generate 1.36 times less return on investment than Dalian Thermal. But when comparing it to its historical volatility, Guangdong Jingyi Metal is 1.24 times less risky than Dalian Thermal. It trades about 0.03 of its potential returns per unit of risk. Dalian Thermal Power is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  747.00  in Dalian Thermal Power on September 12, 2024 and sell it today you would earn a total of  85.00  from holding Dalian Thermal Power or generate 11.38% return on investment over 90 days.

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

Guangdong Jingyi Metal  vs.  Dalian Thermal Power

Guangdong Jingyi Metal

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Jingyi Metal are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Jingyi sustained solid returns over the last few months and may actually be approaching a breakup point.

Dalian Thermal Power

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 17 (%) 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 Guangdong Jingyi and Dalian Thermal

The main advantage of trading using opposite Guangdong Jingyi and Dalian Thermal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Jingyi 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 Guangdong Jingyi Metal 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.

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