Correlation Between NBTM New and Dalian Thermal

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

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

Diversification Opportunities for NBTM New and Dalian Thermal

0.58

Correlation Coefficient

NBTM New  Dalian Thermal

Very weak diversification

The 3 months correlation between NBTM and Dalian is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding NBTM New Materials 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 NBTM New 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 NBTM New Materials 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 NBTM New i.e., NBTM New and Dalian Thermal go up and down completely randomly.

Pair Corralation between NBTM New and Dalian Thermal

Assuming the 90 days trading horizon NBTM New Materials is expected to under-perform the Dalian Thermal. But the stock apears to be less risky and, when comparing its historical volatility, NBTM New Materials is 1.1 times less risky than Dalian Thermal. The stock trades about -0.05 of its potential returns per unit of risk. The Dalian Thermal Power is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  827.00  in Dalian Thermal Power on September 13, 2024 and sell it today you would earn a total of  4.00  from holding Dalian Thermal Power or generate 0.48% return on investment over 90 days.

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

NBTM New Materials  vs.  Dalian Thermal Power

NBTM New Materials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NBTM New Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NBTM New sustained solid returns over the last few months and may actually be approaching a breakup point.

Dalian Thermal Power

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 14 (%) 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 NBTM New and Dalian Thermal

The main advantage of trading using opposite NBTM New and Dalian Thermal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NBTM New 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 NBTM New Materials 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.