Correlation Between Ningxia Building and Dalian Thermal

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

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

Diversification Opportunities for Ningxia Building and Dalian Thermal

0.39

Correlation Coefficient

Ningxia Building  Dalian Thermal

Weak diversification

The 3 months correlation between Ningxia and Dalian is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ningxia Building 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 Ningxia Building 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 Ningxia Building 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 Ningxia Building i.e., Ningxia Building and Dalian Thermal go up and down completely randomly.

Pair Corralation between Ningxia Building and Dalian Thermal

Assuming the 90 days trading horizon Ningxia Building Materials is expected to generate 1.23 times more return on investment than Dalian Thermal. However, Ningxia Building is 1.23 times more volatile than Dalian Thermal Power. It trades about 0.02 of its potential returns per unit of risk. Dalian Thermal Power is currently generating about -0.01 per unit of risk. If you would invest  1,489  in Ningxia Building Materials on December 24, 2024 and sell it today you would earn a total of  25.00  from holding Ningxia Building Materials or generate 1.68% return on investment over 90 days.

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

Ningxia Building Materials  vs.  Dalian Thermal Power

Ningxia Building Mat

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Building Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ningxia Building is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dalian Thermal Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dalian Thermal Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dalian Thermal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ningxia Building and Dalian Thermal

The main advantage of trading using opposite Ningxia Building and Dalian Thermal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ningxia Building 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 Ningxia Building 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.